Daschle’s Sham Plan
This is a stimulus fraud.

By Stephen Moore, president of the Club for Growth
January 29, 2002 8:40 a.m.

oor 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.