The Democrats have expanded their majorities in both houses of Congress and, in a few weeks, they will control the White House as well. Thus, when President-elect Obama says he wants a $775 billion stimulus bill and his party agrees, that is what we are likely to get, regardless of what the Republican party does. Nevertheless, Obama has telegraphed his desire to pass a stimulus package with broad bipartisan support — his reported target in the Senate is 80 votes — so Republicans have some room to negotiate for a better package than the one currently being discussed. That package would combine $475 billion in new spending with $300 billion in tax relief. The tax provisions of his stimulus package would not cut tax rates. Rather, Obama intends to make good on his campaign pledge to create a host of new targeted tax credits. The centerpiece of Obama’s tax plan is a credit that refunds $500 of each worker’s payroll tax, with a cutoff for those making over $200,000. It would be more stimulative to cut payroll-tax rates. It would also be less redistributive and thus less popular among Democrats. Obama would extend some of the business tax credits included in the stimulus bill Congress passed about a year ago. We raise no objections on principle to the idea of returning money to the people or businesses that earned it. But as economic stimulus, it would be far more effective to cut the high corporate tax rate (35 percent) to something closer to the OECD average (26.6 percent). The corporate tax burdens employees, workers, and consumers and creates a drag on all economic activity, and there is strong evidence that reducing it would yield relatively speedy results. On the spending side, Obama has proposed a host of new public-works projects based on the Keynesian theory that government spending is needed to pull the country out of a recession. Increased government spending on infrastructure might be good for some industries (steel, concrete) for a short time, but it won’t do anything to restore consumer confidence, which took a big hit when people started realizing their houses weren’t worth nearly as much as they thought they were. A belief in Keynesian stimulus is sincerely held among many liberals, but it is also true that Keynesian theory is partially a smokescreen for liberals to spend liberally on favored hobbyhorses. Thus, part of the stimulus will go to Obama’s multi-billion-dollar “green-collar jobs” program. The plan calls for major investments in technologies — wind, solar, biofuels — that have never been cost-effective and which would require impossibly high spikes in fossil-fuel prices in order to become profitable (at which point, of course, they would have no trouble attracting private investment). The plan would also provide a massive bailout for states that indulged in politically popular but unaffordable spending during the boom, only to find themselves overcommitted on Medicaid and other fronts. If one looks, one notices that the states in the most trouble and the states with most liberal governments form an overlapping group. Some Republican Governors like Mark Sanford of South Carolina and Rick Perry of Texas have argued that taxpayers from more prudent states shouldn’t be forced to pay for other states’ welfare programs. They are absolutely right. The stimulus package Obama and the Democrats are pushing is of questionable value and will put the nation’s deficit well north of a trillion dollars for the first time in history. Outnumbered overwhelmingly and facing an enormous amount of pressure to act, Republicans’ options are limited. But they should push for the package to include more tax relief than spending, and for the tax relief to be better-designed. If we must have an economic stimulus package, we might as well have one that stimulates the economy.