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Analysis of Stimulus Bill…



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…from House Republicans:

 House Republicans are troubled by the rising unemployment rate and further signs of a severe economic downturn and believe Congress must act.  Economic stimulus proposals should focus on job creation, small business tax relief and putting money back into the pockets of hard-working Americans.  H.R. 1 fails these important tests and should be defeated.

House Republicans believe that allowing American taxpayers and small businesses to keep more of what they earn is the best way to get our economy back on track.  The Congressional Budget Office (CBO) has confirmed that tax relief is a more expedient way to get money into the hands of American families and the economy than government spending.  And yet only approximately 27 percent of H.R. 1 is dedicated toward lowering federal taxes – and less than 3 percent is devoted to tax incentives for private sector investment. 

The President has called for a plan that will “immediately jumpstart the economy.”  According to CBO only 15 percent of the funding in this bill will be spent this year.  The Obama Administration has stated that the bill in total will spend out at least 75 percent over the next 19 months.  However, CBO concludes the bill fails this test with only 64 percent of the provisions spending out during this period. 

The Administration has claimed that the bill will produce 3 to 4 million jobs, which translates into $275,000 per job.  In contrast, the average American worker makes $27,000 a year and pays $2,400 in federal income taxes.  Ultimately, someone is going to need to pay this bill.

Supporters of H.R. 1 have described this legislation as a transportation and infrastructure investment package.  However, the bill only includes $30 billion – a mere 3 percent of the funding – toward “shovel ready” road and highway spending.  Similarly, only $4.5 billion is allocated for the Corps of Engineers for improved flood protection and navigation. 

 Instead, H.R. 1 provides funding for 32 new programs totaling $137 billion or 38 percent of all discretionary spending in the bill.  Seventeen of these new programs have never been considered by Congress and account for $123 billion or 34 percent of all discretionary spending in the bill. 

 CBO estimates that the government’s interest costs for H.R. 1 would amount to $347 billion over the 2009-2019 period.  This means that the total cost of the bill over the next ten years exceeds $1.1 trillion.  The excessive burden will be placed squarely on the backs of our children and grandchildren and will have lasting economic consequences.

H.R. 1 will inevitably add to the calls by Democrats for tax increases.  In less than two years, taxes are already scheduled to rise on workers, families, investors, and businesses.  Republicans oppose raising taxes and believe that raising taxes while the economy is trying to recover from this downturn would be a grave mistake.

 Supporters of H.R. 1 purport that the bill will provide new tax relief to 95 percent of Americans.  More than 27 percent of the so-called tax relief in the bill, however, is direct federal spending disguised as “tax relief.”  The centerpiece of the bill, the “Making Work Pay” provision, is a refundable tax credit being advertised by its supporters as a mechanism to offset a portion of workers’ payroll taxes.  In fact, this provision at the heart of H.R. 1 is a massive new spending initiative through the tax code which the Joint Committee on Taxation estimates will add 5 million households to the already 15 million who receive bigger checks from the IRS than they pay each year in income and payroll taxes combined.

 The inclusion of enhanced bonus depreciation, small business expensing rules and expanded five-year carryback rules for net operating losses are established tools to incentivize capital investment and create and retain jobs.  This tax relief to employers, however, makes up only 7 percent of the tax title over the 2009-2019 period, and an even smaller 2.4 percent of the total bill. 

 House Republicans instead propose reducing the lowest individual tax rates from 15 percent to 10 percent and from 10 percent to 5 percent for two years.  Under this proposal, every taxpaying family in America would see an immediate increase in their income with an average of $500 in tax relief from the new 5 percent bracket and an average of $1,200 from the new 10 percent bracket.  A married couple who files jointly could keep up to $3,400 more a year of their hard earned money under the House Republican plan compared with up to $1,000 under the “Making Work Pay” credit in H.R. 1. 

 Similarly, House Republicans propose more tax relief for America’s small businesses.  In addition to including the same bonus depreciation and enhanced expensing provisions and an enhanced net operating loss carryback provision as H.R. 1, House Republicans propose a new tax deduction for small employers with fewer than 500 employees equal to 20 percent of their income.  Assuming a small business pays taxes at a rate of 30 percent, this change would amount to a 6 percent reduction in taxes on the engine of economic growth in our economy.  

 House Republicans also propose to boost assistance to the unemployed through an extension of unemployment benefits and by suspending for the next two years the taxation of unemployment benefits.  The plan also seeks to stabilize home values through an enhanced $7,500 homebuyer tax credit open to all homebuyers that put 5 percent or more down on a home.  Finally, House Republicans would deliver this stimulative relief to the ailing economy with a significantly smaller increase in the deficit.

House Republicans are also concerned with the expanded entitlement spending and unfunded mandates on the private sector in H.R. 1. 

COBRA:  H.R. 1 permanently waives the 18-month COBRA coverage limit for those who have worked for an employer for 10 years or more or who are aged 55 and older.  This expansion would essentially turn COBRA into a pre-Medicare health entitlement program and could threaten the ability of employers to offer health insurance to their current employees due to higher costs.  Under this program, the federal government would pay 65 percent of the worker’s COBRA premiums for one year.  During such challenging economic times, it is not prudent to impose substantial new financial burdens on employers.

 Davis-Bacon:  The Davis-Bacon Act is applied throughout H.R. 1, but it goes beyond the scope of the original law, including: federal government backed bonds for new renewable energy, energy conservation, qualified zone academy and school construction projects; all highway and infrastructure projects (currently, Davis-Bacon is applied only to federally-funded projects); and all school projects funded through the new school construction program (the General Education Provisions Act applies Davis-Bacon to any project directed by the Department of Education).

 Health IT:  House Republicans support the adoption of health information technology as it will reduce medical errors and improve patient outcomes.  However, rushed adoption of non-interoperable health information technology could impede its deployment and result in a large unfunded federal mandate.  There is also a question about how such legislation will stimulate the economy, especially given that the bonus payments for using electronic health records are not distributed until 2011.

 Medicaid:  H.R. 1 increases the federal share of the Medicaid program by $100 billion over the next two years, but does not hold the states accountable for their performance.  Unfortunately, this is in direct contrast to a recent Government Accountability Office (GAO) report stating that the Medicaid program remained on its list of “high-risk” programs due to “growing concerns about the quality of fiscal oversight, which is necessary to prevent inappropriate program spending.”  While many states claim to be struggling to meet their current financial obligations with the Medicaid program, additional federal funding will not resolve the “significant challenges to address the program’s vulnerabilities” which GAO identified and may provide a perverse disincentive for states not to recoup Medicaid dollars by pursuing anti-fraud cases vigorously.

 H.R. 1 also includes numerous non-stimulative spending and misguided policy provisions, including:

 Broadband:  H.R. 1 allots nearly $3 billion to purportedly stimulate broadband deployment and the economy, but House Republicans believe that the inclusion of controversial provisions on open access, minimum speeds, and build-out requirements make it impossible to meet such goals. 

 Energy:  In order for a state to receive energy efficiency grants under H.R. 1, the state’s governor must notify the Secretary of Energy that his/her state will try to institute a system in which utilities’ fixed costs are covered by consumers, independent of consumers’ energy usage.  This concept is called “decoupling”.  Decoupling guarantees utility profits at the expense of consumers who choose to reduce their own energy consumption.  If governors adopt decoupling to satisfy the stimulus requirements to receive energy efficiency grants, consumers who choose to consume less energy will see their bills either stay the same or actually increase.  Republicans believe that consumers should be rewarded when they save energy, not penalized with higher energy rates. 

 The bill also fails to address important sources of energy that are essential to stimulating our economy.  The energy title of H.R. 1, which authorizes $22.1 billion dollars in spending for renewable energy, transmission projects, and increased energy efficiency, completely neglects almost 70 percent of our country’s electricity supply, meaning that this funding is not available to assist with any clean coal technologies, nor with any zero-emissions energy such as nuclear or hydrogen.  House Republicans believe that a true energy policy stimulates all forms of American energy. 

Health, Prevention and Wellness Fund:  H.R. 1 includes a newly created “Prevention and Wellness Fund” to be administered by the U.S. Department of Health and Human Services.  More than $2.3 billion will be transferred to the Centers for Disease Control to carry-out preventive services, including an additional $335 million for domestic HIV/AIDS, viral hepatitis, sexually-transmitted disease and tuberculosis prevention programs.  Disease prevention is important, however, it is uncertain how it will help to stimulate the economy.  

 New School Construction Programs:  H.R. 1 creates a new program that would direct $20 billion in federal education funding for school construction grants, of which $14 billion would be for public elementary and secondary schools and $6 billion for postsecondary schools.  Financing for school infrastructure projects has been a state and local responsibility.  By broadening the scope of the U.S. Department of Education, the focus of the federal government will shift away from directing funds to states and local school districts to improve student achievement for disadvantaged youth authorized under Title I and to those students with special needs authorized under the Individuals with Disabilities Education Act (IDEA). 

 State Stabilization Fund:  The bill creates a State Stabilization Fund to supplement state spending shortfalls.  States are required to use a minimum of 61 percent of the stabilization funds to assist public elementary and secondary schools and institutions of higher education; however, states must use the funds to restore state education spending to FY 2008 levels.  Section 13011 of the bill explicitly prohibits states from using resources from the State Stabilization Fund to provide financial assistance to students to attend private elementary and secondary schools.  The provision will deny states the ability to fulfill the mandates of IDEA, which contradicts the rights guaranteed to students under the law.  Under the statute, parents of students with disabilities are able to choose the best education environment that meets the needs of their children.  IDEA requires that all students with disabilities are entitled to the same high quality elementary and secondary education as their peers regardless of whether it is a public or private institution.  The remaining 39 percent of the State Stabilization Fund can be used by States as a slush fund to provide spending for any government program they choose with limited regulation.

 House Republicans believe any stimulus must rely on proven methods to get our economy back on track.  It must focus on relief for struggling taxpayers, homeowners and small business.  It must also cast an eye toward future generations that will have to pay the over $1.1 trillion cost of this legislation.  Unfortunately, H.R. 1 relies on borrowing and spending, saddling our children with mountains of debt without providing real relief to those who are struggling to create and maintain jobs.  It will lead to a huge expansion in government today that will almost certainly lead to job killing taxes in the future.  It will not work and it should be defeated.



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