What a Second Stimulus Should -- and Shouldn't -- Look Like

Recounting the findings of a new study by the Keystone Research Center, the Denver Business Journal reports that "the unemployment rate would approach 16 percent nationally -- more than 6 percentage points higher than the current jobless rate -- if not for the federal stimulus program." This comports with data released earlier by the Congressional Budget Office and with the opinions of both liberal and ultra-conservative economists.

Such consensus should end the debate about whether or not Congress should pass another stimulus bill. The only debate should be over the shape of that stimulus bill, and even that shouldn't be up for debate, though, unfortunately, it most certainly is.

From both liberal and conservative economists -- as well as from history -- we know that direct government spending on things like infrastructure and education investment is a good way to prime the economy in the short term and the long term. So is spending on stuff like unemployment benefits and food stamps, which puts money into the hands of those who will spend it immediately on necessities. And, of course, we know from polls that spending on such priorities is far more politically/electorally popular than devoting more money to corporate tax cuts or to deficit reduction.

We also know from the Bush era -0 and from 20th-century history in general -- that tax cuts are far less effective at spurring economic development than direct spending. That's why this Washington Post story is so troubling:

Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, President Obama will call for a $100 billion business tax credit this week... The business proposal -- what one aide called a key part of a limited economic package -- would increase and permanently extend research and development tax credits for businesses...

Sure, it's great that the president today is talking about spending $50 billion on infrastructure. As evidenced by this very diary, I obviously support such new spending. But when the paltry sum of $50 billion is put up against double that amount in corporate tax cuts, it seems like the administration's priorities are all screwed up. If the job-creating weakness of the first stimulus bill was its willingness to devote roughly 40 percent of its funds to less-effective tax cuts and just 60 percent to employment-boosting spending, then a similar weakness will even be more amplified in new stimulus proposals that, by the administration's initial figures, may end up devoting double to tax cuts what it devotes to infrastructure spending.

After all, there are two fundamental problems with the tax cuts being proposed: 1) In general, tax cuts have not proven to be a very good short- or long-term job creator or economic engine and 2) In specific, as Citizens for Tax Justice has long reported, the R&D tax credit has become something of a corporate boondoggle, especially in light of the far more effective direct government spending on R&D. Even the conservative Wall Street Journal has lambasted this particular tax credit as blatant corporate welfare, noting that, according to the Government Accountability Office, 70 percent of it goes not to small businesses in need, but to already-wealthy multinational firms with receipts of $1 billion or more. Think big drug companies, as just one example.

But maybe that's the unfortunate point. Maybe this is yet another example of the administration looking first at how a policy can satisfy Big Money, and then at the (alleged) residual benefits to average American workers -- rather than looking at it in the opposite way. If that's the case, it's tragic -- because the success of the first stimulus' spending gives the administration strong ammunition to put forward a far more progressive proposal, one that would be far more politically popular for Democrats in advance of the 2010 election.