Crocodile Tears Over the Economy

"'This is going to be a battle over doing more of what George Bush has done for the past six years, or doing more for the middle class,' Representative Rahm Emanuel of Illinois, the chairman of the House Democratic Caucus, said in a telephone interview after spending the day in Chicago with Mr. Bush. 'That's where the fissure is going to be.'"

Mark Trumbull writes in the Christian Science Monitor: "J.D. Foster, a senior fellow at the conservative Heritage Foundation in Washington . . . says one possible tax cut might be to make property taxes deductible from the federal income tax even for people who don't itemize their deductions. This would put money in many pockets. And assuming it was a permanent change, this move would bolster home values -- a boon since foreclosure often occurs when a property's value falls below the borrower's loan balance.

"Chad Stone, chief economist at the left-leaning Center on Budget and Policy Priorities, says any stimulus package should be carefully targeted to bolster consumer spending and help households most in need. Extending unemployment insurance and expanding food-stamp aid are two examples, he says."

John D. McKinnon and Damian Paletta write in the Wall Street Journal (subscription required) that "policy makers face a difficult choice in the coming weeks: Should they craft narrow remedies to improve the housing sector alone? Or, as some prominent economists have suggested, should they come up with broader measures to try to lift consumer spending and business investment? . . .

"[F]or Mr. Bush, a big risk is that lawmakers might seize on a broad-based stimulus package to roll back some of his income-tax cuts, particularly for high earners. If forced to veto such a measure, the White House could be tagged as obstructing relief. Democrats, meanwhile, risk turning off voters if they push too hard to raise taxes to cover the potentially high costs of a broad stimulus."

Former Clinton Treasury secretary Lawrence Summers writes in a Financial Times op-ed: "Poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured. This suggests close attention to three issues:

"First, to be effective, fiscal stimulus must be timely. To be worth undertaking, it must be legislated by the middle of the year and be based on changes in taxes and benefits that can be implemented almost immediately.

"Second, fiscal stimulus only works if it is spent so it must be targeted . Targeting should favour those with low incomes and those whose incomes have recently fallen for whom spending is most urgent.

"Third, fiscal stimulus, to be maximally effective, must be clearly and credibly temporary -- with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counterproductive by raising the spectre of enlarged future deficits pushing up longer-term interest rates and undermining confidence and longer-term growth prospects."

Budget expert Stan Collender blogs that "the politics of enacting a stimulus this year are so difficult that it's hard to see how it gets done.

"Since the 2006 election, the White House's legislative game plan has been to make it impossible for the Democratic majority in Congress to accomplish anything unless its strictly on the administration's terms. . . .

"The White House proposal almost certainly will provide a break to a very different constituency than the Democrats. If the politics of the past year continue, the administration will be unwilling to agree to the Democratic proposal and the Democrats will oppose the president's plan. Each will criticize the other but no real attempt at compromise will occur. A Democratic plan will need 67 votes to get past the inevitable veto and congressional Republicans won't supply the votes needed to do that so that they can deny the Democrats a victory just before the election."