The Free Press, Mankato, MN

January 26, 2008

Our View — Tax rebates come with a fiscal cost

There will be few average Americans arguing against the government sending them a check for between $300 and $2,700 or more. The fiscal stimulus bill expected to be approved by the House and the Senate next week and signed by President Bush will also likely do plenty of good stimulating the economy.

Its success to bolster the economy will depend on consumers willing to go out and buy a big screen television while knowing their neighbor may be still looking for work. It can be an iffy proposition in an economy that has created at least some uncertainty. But as Sen. Norm Coleman recently told The Free Press, with the low savings rate in the country, he thinks most people will likely spend the money. It’s a needed hope, but one we’re not sure is something to be proud of.

Beyond that risk, there is the risk of growing the U.S. deficit. The nonpartisan budget watchdog group the Concord Coalition warns against a fiscal stimulus package that goes further than temporary, short-term relief aimed at producing the most bang for the buck. The group argues tax rebates may be fine to stimulate short-term consumer spending, but that longer term policies shouldn’t be changed by the short-term legislation.

The nonpartisan Congressional Budget Office last week raised its estimate of the federal deficit this year to $250 billion, a 53 percent increase from last year. A fiscal stimulus package at $150 billion could increase the deficit to as much as $400 billion.

This comes at a time when the country is heading into the beginning of the baby boom retirement era that will greatly increase demand for mandated federal spending through Social Security and Medicare. The CBO says the country enters the era in a time of fiscal weakness.

The CBO report says the costs of Social Security, Medicare and Medicaid will increase by 20 percent from 2008 to 2018, making up nearly 11 percent of the total economy. These programs’ share of federal spending will go from the current 42 percent to 53 percent by 2018.

Given these harsh fiscal realities, Congress should refrain from loading the economic stimulus bill with a lot of extras.

The Senate wants to add a number of initiatives. Some make sense, some don’t. Extending unemployment benefits makes sense from a couple of perspectives: Unemployment benefits are paid in part by insurance premiums employers pay, so the entire bill is not on the government. It also makes sense as a way to get money into the hands of people who need it and will spend it more quickly. Extending some rebates to elderly living only on Social Security also makes some sense.

But setting up new counseling bureaucracies for overextended homeowners doesn’t make sense. The private and nonprofit sectors are already doing this, and for the federal government to step in would be duplicative. Ideas for investing in new road projects or expensive tax credits for energy projects should be saved for the yearly tax bill.

The economic stimulus package should focus on short-term immediate relief. Hopefully, it will spur spending and business in a way that grows the economy and brings in more federal revenue to keep the deficit in check.