Economy gets shot in arm, whether it needs it or not

Economy gets shot in arm, whether it needs it or not

A month ago, worries about the economy replaced the war in Iraq and health care as the most pressing issue on the minds of the largest number of Americans. That came at a time when employment and sales figures were low and Wall Street was on the slide.

Last week, as Congress was demonstrating a rare ability to act quickly on a bipartisan bill to provide the economy a shot in the arm, an Associated Press-Ipsos poll showed that when a pollster combined the Iraq War and the economic slump into a single issue, a majority of those polled said that getting out of Iraq was their preferred way of helping the economy.

If only it were that simple. But while the war is certainly adding to the budget deficit and muscling out spending on some domestic priorities, nothing the president or Congress could do regarding the war in Iraq would have an immediate effect on the U.S. economy.

Of course, some people, even a number of economists, say getting out of an economic slump isn’t as quick and easy as Congress’s passing the economic stimulus plan that is headed for President Bush’s desk this week.

Whether it is or isn’t, only time will tell.

The economy was stagnant in the final three months of 2007. The economy may actually be shrinking now, a reaction to the collapse of the subprime mortgage market, job losses, rising energy costs and a shrinking dollar. If it isn’t, the $161 billion stimulus package was an unnecessary addition to a budget deficit that is already far too large.

But if it is, the package could turn out to be one of the best things Congress and the administration could have done to soften a recession and get the economy growing again.

There are flaws

The package certainly isn’t perfect. It was largely the work of Democratic House Speaker Nancy Pelosi of California, House GOP leader John Boehner of Ohio and Treasury Secretary Henry Paulson and the White House. The measure stalled in the Senate when Democrats tried to load up the bill with another $37 billion in benefits, including extended jobless pay and heating assistance. The jobless benefits made sense, since giving unemployed people cash is one of the fastest ways of getting the money into circulation, but Democrats needed 60 votes to break the deadlock and they came up one vote short.

Even after a compromise was reached, 16 Republicans in the Senate voted against the bill, which passed the House 380-34.

Essentially, the bill is one-year tax cut for low- and moderate-income individuals and families. Individuals earning up to $75,000 will receive $600. Couples earning up to $150,000 will receive $1,200. People earning more than $3,000 but too little to pay taxes will get $300. Those earning more than $75,000 will receive reduced or no rebates.

There’s also a welcome tax incentive for capital expenditures by small businesses.

Whether these incentives give the economy the boost it needs isn’t certain. What is certain is that the next president and the next Congress are going to have to show more fiscal discipline.

The nation simply can’t go on borrowing to cover the war, borrowing to cover other shortfalls and now borrowing to give another tax cut, even if it is a one-time thing.

Too many individuals — and certainly Washington — have been spending as if there is no tomorrow.