Stimulus Deferred

INVESTOR'S BUSINESS DAILY Wednesday, January 21, 2009 4:20 PM PT

Economy: President Obama has asked Congress for a big stimulus package that could be put to work right away. Congress' answer, to spend $355 billion on infrastructure and other programs, comes up way short.

The idea behind a "stimulus" package is to give the slumping economy an immediate boost. At least, that's how we've been sold on the need for $825 billion in new spending. President Obama himself, in Tuesday's inaugural address, called for "bold and swift" action on the economy.

But now comes a report from the nonpartisan Congressional Budget Office that says of the $355 billion tagged by House leaders in their plan for infrastructure and other discretionary outlays, only $136 billion would be spent by October 2010.

"The rest," noted a Washington Post story, "would come in future years, long after the CBO and other economists predict the recession will have ended." In short, it's not stimulus at all. And it's certainly not "bold and swift."

By the Sept. 30 end of this fiscal year, only $26 billion of the total would be spent on infrastructure and just $2.64 billion of the $19 billion pledged for renewable energy and other green projects.

Meanwhile, according to the CBO, plans to expand rural and underserved areas' broadband Internet service and to build clean drinking-water projects will take years.

You might like these ideas. And you might not mind the hundreds of billions in new spending. But let's not call it stimulus. Under Congress' plan, it's pork.

It's true that the entire stimulus package is much bigger — $825 billion — than just infrastructure. And of that amount, another $275 billion will still go for tax relief, mostly to individuals, but also to manufacturers, retailers and homebuilders. Another $200 billion will be spent to expand jobless benefits and health care.

But a closer look shows that much of the tax relief will go to people who pay little or no taxes to begin with. Indeed, the House plan gives no tax breaks to households in the top 5% of incomes, even though they pay more than 60% of all taxes.

In other words, it won't be relief so much as a redistribution of income. Those who need relief the most, those in the higher income brackets who actually pay the vast majority of taxes and who often run small businesses, will get little if anything.

That leaves the infrastructure part of the stimulus plan to do the heavy lifting. Since much of it won't take place for years, the real stimulus will be elusive. The debts run up for future generations, however, will be all too real.

So much for Democrats' claims that there are literally hundreds of "shovel-ready" infrastructure projects ready to go — just add stimulus money. In fact, thanks to strict government regulations, infrastructure projects can take months, if not years, to start even when money is available.

It's not that some of the infrastructure spending won't help. It will. But relying on it to pull us out of recession isn't wise.

President Obama has requested that the bulk of the spending take place before 2011. He's hoping the plan, which mixes tax breaks with a big slug of government spending, will boost GDP by 3.7% and save or create 3.3 million to 4.1 million jobs over two years.

If properly designed, it might work. But Democrats in Congress have already let down their new leader. They'd be wise to focus on stimuli that actually stimulate. Broad-based tax cuts, for instance.

It's fine to spend money on infrastructure, but cutting taxes on both businesses and individuals would improve incentives to work and invest, and bring the banks in from the sidelines to start lending again. Then, everyone wins — not just Congress' pork-barrel spenders.