So let’s see if we’ve got this straight: Nancy Pelosi and the Democrats want to enact another “economic stimulus package,” yet they remain opposed to long-term tax relief, they’re opposed to cutting the business tax rate, they’re opposed to drilling for new domestic sources of oil, they’re against the idea of pursuing market-opening trade agreements, and their party’s nominee wants to raise rather than lower taxes on small businesses as soon as he gets into office. With all those options off the table, what’s left?
Tax-rebate checks, unfortunately — another $30 billion worth. This would be in addition to the $100 billion worth of tax-rebate checks from the last stimulus package, which the Treasury Department hasn’t even finished sending out yet. That package, enacted last February, was intended to be a “booster shot” for the American economy. It might have kept retail sales strong in April and May, but those effects appear to have already worn off.
June’s retail sales numbers came in much lower than most economists’ predicted, indicating that checks are now being saved or swallowed by the surging cost of gasoline. The latter could be mitigated by a breakthrough in the debate over domestic oil exploration, but Pelosi and Senate majority leader Harry Reid remain dead-set against new drilling.
The February package also contained new tax breaks on business equipment and other capital costs, but tax breaks can only go so far in the midst of a credit crunch that has dried up sources of financing. A corporate-tax rate cut of the sort John McCain favors, on the other hand, boosts productivity, creating conditions for higher wages and lower prices. But in the Pelosi-Reid Congress, you’d have an easier time making Dick Cheney’s birthday a national holiday.
Another round of rebate checks will not do much to bolster the economy, but neither is it likely to do much harm. The same can’t be said for other provisions the Democrats wish to attach to the bill, such as an expansion of the food-stamp program that would add billions more to the deficit. If Congress really wanted to make food more affordable, it could start by breaking off its love affair with ethanol. Since 2005, biofuel mandates have driven up feed prices for beef and dairy farmers by diverting millions of acres of corn into the production of a worthless fuel, and those costs have been passed on to consumers.
In fact, looking at the Democrats’ proposal, we get the sense that the latest round of rebate checks is merely a Trojan Horse for the food-stamp expansion and other new spending items they weren’t able to attach to the first economic stimulus bill. This bill has very little to do with stimulus at all, and everything to do with crafting a goodie bag of tax rebates and subsidies that Democrats can deliver to voters just months before the election. (Reid has signaled that Congress will take up the bill after the August recess.)
The economy is less in need of stimulus and more in need of a Congress that understands its strengths. Two sectors in particular are proving their resilience: Export-oriented businesses are thriving, because the dollar’s relative weakness is making U.S. products a good buy overseas, and small businesses are still creating jobs even amidst the broader economic slowdown.
But rather than opening new markets for our exporters, this Congress has demonstrated its hostility to trade by passing a bloated farm bill that has enraged our World Trade Organization partners, with whom we are trying to negotiate a new market-opening deal. This is to say nothing of the U.S.-Colombia Free Trade Agreement, which continues to languish in congressional limbo. U.S. exporters to Colombia have paid over $1 billion in tariffs since the administration inked the deal over 18 months ago. As for small businesses, Obama’s plan to raise the top two tax rates would affect hundreds of thousands whose proprietors file as individual rate-payers.
If the Democrats were serious about passing legislation that would stimulate the economy, then they would be pledging to keep taxes low, cut the corporate rate, remove barriers to energy exploration, and pursue market-opening trade agreements. But none of that is on their agenda. Instead, they wish to purchase an expanded majority with a pre-election tax rebate and then raise taxes once they acquire it. We’ll take the rebate checks, of course, but we won’t be fooled, and we hope the voting public won’t be either.