Mr. President, it’s time to go big on the economic solutions. It’s time to propose a massive second stimulus, offset by some serious tax hikes and budget cuts once the economy regains a semblance of good health. Republicans won’t go for it, but they don’t go for small economic solutions either, be they extensions of unemployment insurance or a miniaturized infrastructure bank. (The current level of GOP commitment to infrastructure would about cover the purchase of a Lego set.)
Economically, the case for a massive stimulus is a good deal stronger than the case for the rather minimal one that you’re calling for — extending unemployment insurance and the payroll tax cut, and establishing an infrastructure bank. A major stimulus is the only conceivable source of substantially increased economic activity and jobs for at least several years. Even before the 2008 crisis, our multinational corporations were shedding jobs at home and creating them abroad. The crisis only intensified their flight to the low-wage and faster-growing nations of the developing world. They’re probably not coming back. Our non-luxury retailers and small businesses won’t expand so long as American consumers can’t purchase more, and American consumers will need years, and luck, to diminish their debt and start buying again. State and local governments are shrinking sharply, too. As blogger Matt Yglesias noted last month, public-sector employment rolls have declined by 500,000 jobs since you took office.
Which leaves us with this stark reality: If the federal government doesn’t intervene massively to help the economy, the economy will oscillate between neutral and reverse for many years.
What should that intervention look like? First, don’t just extend the 2-percentage-point reduction in the employee payroll tax, which is normally set at 6.2 percent. Eliminate the tax altogether, for employers and employees, at least temporarily. It would increase by $2,100 the take-home pay, and buying power, of workers making $50,000 annually. It would make it easier for small businesses to resume hiring.
Republicans have been cool even to extending the 2-percentage-point reduction in the employee tax. The Hill reported last week that Senate Republican Whip Jon Kyl and GOP Conference Chairman Lamar Alexander say there is “no appetite for extending either the payroll tax [reduction] or the unemployment benefits.” In fact, the presumably anti-tax GOP habitually supports taxes (payroll and sales, for instance) that don’t annoy the rich — and in the case of the payroll tax, Republicans want to raise it. This is not, however, a politically sustainable position when Americans are struggling to get by.
The payroll tax can’t be suspended indefinitely without compromising Social Security, which it funds. Its suspension should end when unemployment falls to a specified level — say, 7 percent.
We’ll need other, less fleeting forms of stimulus, too. You should call for renewing aid to state and local governments. Infrastructure bank or no, you need a long-term program to make our nation navigable again. (Our knowledge of how to get from A to B has improved, thanks to global-positioning technology, even as the road, airway and rail connections between A and B have declined.)
Those kinds of projects may take years to realize. Your first stimulus failed to establish a fast track for creating less-capital-intensive jobs in maintenance, rehabilitating buildings, and child- and elder care. It deferred job creation to state and local governments, which have taken forever to set up even such relatively low-tech endeavors as home-weatherization projects. This time around, you should acknowledge the bottlenecks in your first stimulus and call for a federal job corps to do this kind of work.
Republicans will call you a socialist and refuse to pass any of this, with the possible exception of a payroll tax suspension. But you need a program to run on, one that gives people some hope for the nation’s economic prospects and their own. The small stuff won’t do that. It’s time to go big.
So forget the Vineyard. When Congress comes back (you can call it back if the economy keeps dropping), address a joint session and lay out what we need to do to get the economy on track. Don’t get rattled if the Republicans boo. You’re making your case for salvaging the American economy and your presidency. And, brother, do you need one.