Economic stimulus plans ought to specify how the borrowed money gets repaid

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Tuesday, June 8, 2010

THERE'S GROWING pressure on Congress, from the administration and its liberal allies, to dig deeper into China's pockets for another round of stimulus spending. Yes, eventually the nation has to tackle its mounting debt, they argue -- but not yet. Too many people are still hurting, and the recovery is still too fragile. To start tightening the screws now could send the country back into recession.

A couple of points are conveniently missing from this argument. We don't know which way the U.S. economy is heading. Last week's jobs report was discouraging, and bad news from Europe has spooked other parts of the world. Maybe a case can be made for another round of unemployment benefits and other spending that reaches the economy quickly.

But as analysts ponder the mystery of weak private-sector hiring despite signs of economic growth, it's worth asking what role is played by government-induced uncertainty. With the federal government promoting major changes in health care, financial regulation and energy law, it wouldn't be surprising if some companies are more inclined to wait and see than they might otherwise be. And that's especially true when they look at looming American indebtedness and the effect that could have on long-term interest rates.

Which brings us back to the opening argument. We'd find the stimulus-now, spinach-later argument more credible if its advocates gave some hint of where the long-term belt-tightening will take place. Even if there is a danger of tightening too soon, any number of measures could be set in motion today that wouldn't take effect for a year or two or even more. The Bush middle-class tax cuts could be extended one more year, instead of in perpetuity, with an understanding that they will expire in 2012. Adjustments could be made to the formula by which Social Security retirement benefits increase every year, again to take effect down the road. The administration could propose a gradual increase in the gasoline tax.

But neither President Obama nor most of the pro-stimulus chorus have shown any stomach for such measures. Indeed, the one fiscally positive part of health reform -- a tax on overpriced insurance plans -- was postponed so it wouldn't kick in until after Mr. Obama had left office, even if he serves two terms. Now any talk of hard choices is deferred to a bipartisan budget commission that has no statutory authority and that will not report until after the midterm elections. We wish the commission every success. But in the meantime, the very specific recipes for short-term spending would be more persuasive if accompanied by proposals for long-term fiscal recovery that were equally concrete.


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