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Tom Daschle.
Has anyone
had a worse start to 2002 than the Senate majority leader? Last
month Daschle gave a well-publicized speech blaming the Bush tax
cuts for the recession and the shrinking budget surplus. The American
people aren't buying it — they want the tax cut to go forward.
The speech was a colossal flop and merely helped define the national
Democratic party as opposed to tax cuts always and everywhere. Even
many of the moderate Democrats in Congress who must face the voters
in November 2002 distanced themselves from the economic lunacy of
Daschle's overheated rhetoric.
In South Dakota
groups like the Club for Growth are pummeling Daschle for being
the one man in Congress who stands between America and an economic
stimulus plan. Feeling the heat, last week Daschle lashed back with
his own ad campaign trying to buttress his sinking approval ratings
in his home state and across the country. But South Dakota is a
state that went for Bush with 60% of the vote. South Dakotans want
his tax cut — especially death-tax repeal, which Daschle voted
against. In sum, Tom Daschle's in big-time political trouble.
Now the majority
leader is frantically shifting into political damage control. He's
offered up a diluted "compromise" economic stimulus plan.
But that plan is no compromise at all. It is essentially a warmed-over
Democratic wish list with tens of billions of dollars of new spending
proposals mixed with temporary and impotent tax cuts. This is worse
than no stimulus plan at all — and the GOP should flatly reject
it.
Daschle says
that Congress should pass the four stimulus provisions that both
parties commonly agree on. The problem is none of those four measures
would help juice the economy. Daschle wants tax rebates for those
who don't pay income taxes, 13 weeks of added unemployment insurance,
and expanded health care for those who lost their jobs in the recession.
Tax rebates have virtually no incentive effects on job creation
or investment — a lesson we should have learned last August.
Extending unemployment benefits increases unemployment by paying
workers to stay unemployed. Instead of finding a new job after 26
weeks of losing their jobs, under the Daschle plan, workers would
now wait 39 weeks before seeking reemployment.
Mr. Daschle
would also like the federal government to make payments to states
for costs related to protecting against terrorism. This is simply
a resurrected form of federal revenue sharing with the states —
an idea that was originally tried in the 1970s and led to states
and cities investing in huge boondoggles with their "free"
federal dollars. It is bad public policy for one level of government
to pay for the services and projects of another level of government.
It makes no sense to have the people of Alabama pay taxes for the
cost of additional security measures in Maine.
Moreover, the
premise of this new federal revenue-sharing scheme is that cities
and states are too scrapped for cash to pay for the costs of extra
security measures. But as a new American Legislative Exchange Council
study documents, the states have been on a spending rampage since
the early 1990s and are anything but revenue deprived. In the 1990s
many states doubled their tax collections and their expenditures.
States and cities have plenty of funds for the police-state functions
associated with the threat of terrorism.
The only real
tax-cut provision in the Daschle plan would create tax incentives
for new business investment. That's a very good idea. Business-capital
spending has almost entirely disappeared over the past nine months.
Moreover, the current tax code is highly punitive in its treatment
of new business spending for plant, machinery, and equipment. In
an ideal world, businesses should be able to deduct these expenses
immediately from their revenues. The problem with the Daschle plan
is that it would only allow the business tax cut for one year. As
Cato Institute economist Alan Reynolds has shown, temporary tax
cuts like this are very nearly worse than no tax cut at all. Temporary
tax cuts shift the timing of investment, not the overall level of
investment.
On balance,
the Daschle plan is a stimulus fraud: The new government spending
he seeks would hurt the economy more than the temporary tax cuts
would help it. Bush and the Republicans should reject it out of
hand.
Daschle's wily
strategy is transparent as can be: He wants President Bush to pass
an inferior stimulus bill and then blame the White House and Republicans
for its failure. The only American whose job would be saved by this
sham stimulus bill would be Daschle's own.
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