The Free Press, Mankato, MN

June 15, 2010

Our View: Stimulus must be targeted

The Free Press

MANKATO — As President Barack Obama asks Congress to approve another $50 billion in spending to bolster the economy, to extend some stimulus programs, Congress should study its economics to see what kind of funding will give us the biggest bang for the buck.

While taxpayers can be rightly concerned about more spending, especially that which would raise the federal deficit, the budget watchdog group Concord Coalition recommends a balanced approach when it comes to deficit hawking and economic stimulus.

Its chief economist Diane Lim Rogers suggests that “fiscal hawks” can be in favor or short-term stimulus to bolster economic growth and long-term deficit reduction. Being in an extreme position either way risks further damage to the economy, further risking tentative jobs that are just starting to come back.

On the one hand, too much deficit reduction through drastic cuts in spending or increased taxes would not be wise at this juncture, according to Rogers. Federal Reserve Chairman Ben Bernanke echoed those sentiments earlier this week.

So with Obama asking for another $50 billion to extend some stimulus programs, we can ask: What would Adam Smith do?

Since Adam Smith is not around, the Senate Budget Committee asked the next best person or people: the Congressional Budget Office.

A CBO report in January suggested that Congress take stimulus actions that provide the biggest bang for the buck, do not significantly increase long-term deficits, and that the benefits are timed well, and provided when they are needed most.

The report measured the effectiveness of different policies based on their ability to increase full-time employment per dollar of federal budget cost.

The top policies were shown to be: Increasing aid to the unemployed, reducing employers’ payroll taxes for those employers who increase their payroll, and reducing employers’ payroll taxes in general. Those policies were estimated to provide anywhere from five to 19 years full-time employment per million dollars of budget cost. And most of those policies would have impacts for the economy right away.

Providing a one-time Social Security payment and allowing more investment tax write-offs were estimated to have a much smaller impact on employment, or in the range of two to eight years of full-time employment per million dollars of budget cost.

All of this can and should be instructive to Congress and the president. The president and a mostly bipartisan coalition of Congress have been extending unemployment benefits regularly, a policy said to help spur the most employment. But reducing employers’ payroll taxes comes in a close second, especially if we reduce the taxes of those who increase their payrolls.

The request Obama made of lawmakers last weekend was mostly to send money to states to prevent what Obama called “massive layoffs” of teachers, police and firefighters. Some $23 billion of his request would help prevent the expected layoff of up to 300,000 public school teachers, according to estimates.

That doesn’t sound like reducing employers’ payroll taxes.

There are plenty of things and people that $50 billion can help in this economy, but with the risk of tipping the deficit further into the red, Congress the president would be wise to focus on the stimulus spending that provides the biggest return to the economy first.