Robert Samuelson on the Proposed Stimulus Package

In his syndicated column today ("Too Little Bang for the Bucks"), Robert Samuelson makes some good points about the stimulus package as recently passed by the House of Representatives. Key excerpts:

The $819 billion program passed by the House will only slowly provide stimulus. The Congressional Budget Office estimates that in fiscal 2009 (through this September) about 21 percent [$169 billion] of the new spending and tax cuts will flow to the economy.

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A package so large can be defended only because the economy is so weak -- and seems to be getting weaker by the moment. The central purpose is simple: halt downward momentum. Perhaps some of the out-year spending might ultimately prove useful. But the immediate need is for the stimulus package to stimulate -- now. It needs to be front-loaded; it isn't.

Obama's political strategy fails to address adequately the economy's present needs while also worsening the long-term budget outlook. Some of his "temporary" spending increases in practice will almost certainly become permanent. There were tough choices to be made -- and Obama ducked them all.

Much is made of the ideological arguments about government spending versus tax cuts in the context of this stimulus bill, but there's less to those arguments than meets the eye. In practice, since the tax system is already highly progressive, most tax relief targeted mainly at lower income earners will essentially be government transfer payments (e.g., refundable tax credits). The key issue with respect to front-loading any fiscal stimulus is that, aside from the relatively small amount of money that can be spent on shovel-ready infrastructure projects, the only other way to impact the economy this year is through fast-acting measures such as transfer payments (e.g., unemployment insurance, food stamps) and tax relief (e.g., a payroll tax holiday).