PRESS RELEASE
-For Immediate Release-
January 24, 2008

Contact: Brian Gumm, (202) 234-8494, bgumm@ombwatch.org

Proposed Economic Stimulus Package Falls Short

WASHINGTON, Jan. 24, 2008—Provisions of a proposed fiscal stimulus package, which was agreed to by House leaders and the Bush administration, were announced this afternoon at a press conference with House Speaker Nancy Pelosi (D-CA), House Minority Leader John Boehner (R-OH), and Treasury Secretary Henry Paulson. OMB Watch believes that the proposed package is a good start but falls short of its stated goal of adequately stimulating the economy.

The agreement provides for a well-targeted set of tax rebates. Individuals who pay income taxes would receive up to $600, working couples $1,200; an additional $300 per child would go to working individuals or couples. Workers who make at least $3,000 but do not pay income taxes would receive $300 rebates. These rebates would be limited to individuals earning under $75,000 and couples earning less than $150,000.

But the inclusion of tax credits for businesses totaling roughly $50 billion — upward of a third of the package — is too great a price to pay and would likely be ineffective. This is because almost all of the business tax provisions have delayed and marginal stimulative impact. According to Mark Zandi of Moody's Economy.com, each dollar spent on extended unemployment benefits yields $1.64 in increased economic activity while each dollar in increased food stamp benefits creates $1.73 in new economic activity. Meanwhile, the business tax credits in the proposed package would generate only 27 cents in increased economic activity per dollar of cost and would be absorbed much more slowly into the economy.

Economists as ideologically diverse as Harvard professors Lawrence Summers and Martin Feldstein agree that an appropriately designed stimulus package should be restricted to elements that will contribute cash directly and immediately to those with the greatest propensity to spend it on consumer items, so as to maximize the stimulative effect on the economy. When such a consensus among economists exists, heed should be taken. The agreement appears to not follow this advice.

OMB Watch believes there is room for improvement to this package that would incorporate Summers' and Feldstein's advice by temporarily extending federal unemployment benefits and expanding food stamp benefits to those hit hardest by the recent economic changes. It is particularly encouraging to hear Senate Finance Committee Chair Max Baucus' (D-MT) belief that it would be a mistake to exclude unemployment benefits from a stimulus package. Baucus has announced that the Senate Finance Committee will draft its own stimulus bill and hold a mark-up of that bill next week, a move that Senate Majority Leader Harry Reid (D-NV) supports.

Quick action on a fiscal stimulus package is imperative. We applaud the progress made thus far, especially regarding targeted tax rebates. But even these well-crafted proposals would not put cash in citizen's hands until early summer, according to Paulson. If Congress and the president want to have the most effective and immediate impact on the economy, those tax provisions must be complemented by high-impact spending provisions such as unemployment benefit extensions and additional food stamp assistance.

The terms of the package announced today are tentative — they reflect only an agreement between House leadership and the White House. There is still time for the improvements described above to be incorporated into the fiscal stimulus package, and we hope that they will be made.

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OMB Watch is a nonprofit watchdog organization dedicated to promoting government accountability, citizen participation in public policy decisions, and the use of fiscal and regulatory policy to serve the public interest.