WITH AN ECONOMIC stimulus package approved by Congress and on its way to the White House for signing, self-congratulation is the order of the day in Washington. "It's tremendous what we've been able to accomplish," Senate Majority Leader Harry M. Reid (D-Nev.) crowed. "This is the Senate at its finest," said Senate Minority Leader Mitch McConnell (R-Ky.). President Bush called the plan "robust, broad-based, timely." Isn't bipartisanship wonderful?
Up to a point. As it finally emerged, the plan goes much of the way toward fulfilling the criteria for effective pump-priming: that it be temporary, targeted toward those most likely to spend and timely -- in the sense of delivering cash to households and businesses before any recession has run its course. The two-year cost is $168 billion, with nearly two-thirds of that accounted for by one-time tax rebate checks for 130 million households. This includes disabled veterans and 20 million low-income elderly people who were not part of the original deal between Mr. Bush and House Speaker Nancy Pelosi (D-Calif.) but who were added by the Senate. Higher-income households, which are more likely to save rather than spend the windfall, will not be included; the rebates phase out for people with taxable incomes of more than $75,000 for individuals and $150,000 for couples. And the bill is relatively well focused, notwithstanding Democratic efforts to load it up with home-heating aid and a tax break to help businesses recoup past losses.
The bill could have been worse. But it could have been a lot better, too. Politically, checks for the elderly and veterans were a no-brainer; as economic stimulus, however, they were not clearly preferable to extended unemployment benefits and increased food stamps, both of which Congress rejected. The bill unwisely authorizes Fannie Mae and Freddie Mac to back high-cost home loans, exposing the federal government to greater financial risk for the benefit, mainly, of those who buy and sell expensive real estate.
Congress and the president have shown that the two parties can, indeed, agree on a big policy decision swiftly -- when it's a decision to hand out money to voters during an election year. The theory of the stimulus package is that it will help blunt any coming recession, after which Congress can return to other issues amid calmer economic conditions. Those issues include health care, entitlement spending and the deficit, none of which can be resolved without a measure of sacrifice. That will be a real test of bipartisanship.