For five days this month, Barack Obama was right about economic policy.
At his jobs summit last Thursday, the president spoke atypically plainly about whether Washington can quickly stimulate the economy by spending money on roads and bridges.
He noted that “what is good long-term may not necessarily work as an immediate, short-term stimulus,” and that “the term ‘shovel ready’… doesn’t always live up to its billing.”
On Tuesday, however, Obama announced a new, multibillion-dollar spending package designed to help us “spend our way out of this recession.” The plan includes a reported $50 billion for — wait for it — infrastructure.
He had it right the first time. We may need some new roads and bridges, but these are not short-term economic boosts. In any case, infrastructure accounted for less than 10 percent of a bill that was sold in large part as a “reinvestment” package that would pay dividends for decades. In Atlanta, these “investments” include planting trees along downtown sidewalks.
The new stimulus would spend nearly twice as much on infrastructure as the last stimulus included — you know, the measures whose impact Obama played down last week.
The only lesson learned at the White House, it seems, was not to call it a “stimulus” this time.
But infrastructure is not the only dead end in this plan. Home-weatherization incentives, for example, are more of an energy policy than a way to jump-start the broader economy.
A couple of Obama’s measures might spur small businesses to invest. These include an extension of these firms’ ability to expense immediately some investments, as well as a one-year elimination of the capital gains tax for investments in small companies (though committing to keeping the current top rate of 15 percent for all investments would have a larger positive economic impact).
There’s also a tax credit for small businesses that hire workers next year. But it’s not as promising as it sounds.
A one-year tax break for an investment in, say, equipment makes sense: You’re only going to buy a particular item once. Few employers, however, will be fooled by a one-year credit for adding a (one hopes) permanent position.
That’s a bet that many firms won’t want to make, given the disincentives for hiring that Democrats are pushing: a health-insurance mandate and cap-and-trade, among other bills. Worries about the cost of complying with future regulations are the main reason firms large and small are hesitant to hire.
It also appears that the short happy life of Obama the Deficit Hawk is over.
Incredibly, the president says we can afford his plan because we haven’t spent $200 billion of the money tabbed for the Troubled Asset Relief Program for banks, or TARP. Some reports on the Obama plan have described this $200 billion as a “windfall” that gives him the flexibility to spend more money.
By this logic, an indebted couple who negotiate new mortgage terms for their house, staving off foreclosure and reducing their debt by tens of thousands of dollars, now have a “windfall” to go spend on a new car.
This is money that we anticipated borrowing over the long term. Now we don’t need it. And even with this $200 billion reduction, the administration still expects the TARP to have a net loss surpassing $140 billion.
Instead of limiting the loss by retiring some debt, the administration wants to sink TARP money into projects that will never be “repaid” in actual dollars.
All this, and Obama had the gall Tuesday to reject the “false choice” between trimming the budget deficit and paying for Stimulus III. In fact, this is precisely the choice we face here.
The president said he’s still committed to halving 2009’s $1.4 trillion deficit by the end of his term. If so, that process must start now, with this $200 billion.
Note: This text has been edited since the original posting to clarify the point about the capital gains tax.
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