Economic Stimulus ? First, Do No Harm

An economic stimulus plan will be on the table early in the next Congress. Following is the tentative schedule. Given the sudden change in Senate leadership with Sen. Trent Lott’s (R-MS) resignation as Senate Majority Leader, there is a great deal of uncertainty about how the budget process will proceed next year, including issues of timing, number of reconciliation bills, and content. The next Watcher may contain a very different timetable.

An economic stimulus plan will be on the table early in the next Congress. Following is the tentative schedule. Given the sudden change in Senate leadership with Sen. Trent Lott’s (R-MS) resignation as Senate Majority Leader, there is a great deal of uncertainty about how the budget process will proceed next year, including issues of timing, number of reconciliation bills, and content. The next Watcher may contain a very different timetable.

An economic stimulus plan will be on the table early in the next Congress. Following is the tentative schedule. Given the sudden change in Senate leadership with Sen. Trent Lott’s (R-MS) resignation as Senate Majority Leader, there is a great deal of uncertainty about how the budget process will proceed next year, including issues of timing, number of reconciliation bills, and content. The next Watcher may contain a very different timetable.

January: Finish 2003 appropriations through omnibus bill(s) and address an extension of unemployment compensation benefits.

February: Complete five-year budget resolution for 2004 including instructions for two “reconciliation bills,” which are intended to move legislation to implement tax and entitlement ideas in the budget resolution.

March to Mid-April: Complete work on the first reconciliation bill, which will include an economic “growth” package – that is, tax cuts.

May/June: Complete work on the second reconciliation bill (entitlements including TANF and prescription drug coverage)

Reconciliation bills in the Senate are considered by the Finance Committee based on instructions of the Budget Committee. The Budget Committee has the final authority. Bills under the reconciliation process can be passed by a simple majority (51 Senators voting in favor) and cannot be permanent measures without having 60 Senate votes.

Why do we need an economic stimulus plan?
The recession has caused rising unemployment, now at 6%, fewer available jobs, wage and income losses for those who are employed, and an increased loss of confidence in the economy. Low-income workers are hardest hit and the recession is worsening our growing income and resource inequality. The Economic Policy Institute’s slide show “The Job Crisis and Stimulus Policy” is a good overview.

What should an economic stimulus plan accomplish?
It should create more consumer demand, i.e., more “customers” for goods or more government services in an economy that, because of the recession, currently has more capacity than can be used. The idea is to quickly generate more jobs and economic growth.

What are good criteria for an effective economic stimulus plan?

  1. It needs to take effect immediately and have an impact over the next year or year and a half.

  2. Any tax cuts or spending measures in the stimulus package must be temporary so that our long-term fiscal condition is not harmed. We need a short-term economic stimulus not long-term (and hard to correct) fiscal harm.

  3. Since the recession primarily hurts low- and middle-income Americans, the stimulus package should be fair and should focus benefits on ordinary families.

  4. Since government spending is a useful part of a stimulus plan, we should direct it towards important priorities and needs.

These guidelines are similar to those laid out in October 2001, after the September attacks, when the Senate and House Budget Committee Chairs and Ranking Members, in an effort to underscore the importance of enacting an economic stimulus package, issued a joint statement of principles to guide the construction of such a package. In it, Congressional budget leaders stated that "long-term fiscal discipline is essential to sustained economic growth" and that any stimulus package "should restore consumer and business confidence, increase employment and investment and help those most vulnerable in an economic downturn." Moreover, they all agreed that the effects of a stimulus package should be felt within 6 months of passage and that all components should expire within one year, if at all possible. Finally, they declared that the package should be directed at individuals most likely to spend the additional income and businesses most likely to increase investment and employment. This was a bipartisan agreement, focused on creating a stimulus package that would be effective.

Following is a comparison of the Administration’s “Growth” Plan (which is still being designed), the Economic Policy Institute’s design for a “Stimulus” Plan, and Sen. Max Baucus’ (D-MT) proposal. It contrasts two very different conceptions of what needs to be done. While there may be different visions of the specifics that ought to be contained in an economic stimulus plan, the EPI stimulus plan is a good example to compare with the Administration’s growth plan. Please also refer to the OMB Watch Economic Policy page for more about the economic stimulus package debate last fall and winter.

Contrast of Administration’s Economic “Growth” Plan, EPI Economic “Stimulus” Plan, and Sen. Baucus’ Stimulus Proposal


  Description Criteria Provisions Cost
Bush "Growth" Plan The “Economic ‘Growth’ Plan” is the way the Administration chooses to characterize its ten-year effort. As the name reflects, it is not designed to provide an immediate economic stimulus, since it covers ten years and it primarily will benefit wealthier families and individuals and corporations through tax cuts. The provisions, like those in the Bush tax cut, end after ten years with the intention that they will be renewed, since it will be very hard to “raise” taxes by letting the cuts expire. Thus, this plan will reduce revenue and increase budget deficits for decades. The Administration’s plan does not meet any of the criteria identified above for an economic stimulus plan. Benefit the President’s wealthy constituencies and line up with conservative “supply-side” economics theories, which rely on a trickle-down effect on low- and middle-income Americans, who are having the most difficult time in this recession and are in the worst position to wait.
  • Eliminating the tax on corporate dividends paid by individuals.

  • Accelerating the reduction of the higher income tax rate from 2004 (as provided in the prior Bush tax cut bill) to 2003. Accelerating the reduction of the tax rate scheduled for 2006 in the Bush tax cut bill to 2004.

  • Cuts in pension taxes.

  • Accelerating the child care tax credit.

  • “Small business” tax cuts, like business expensing breaks, investment credits, or even permanent repeal of the estate tax.
$300 billion over ten years. Not a short-term, temporary stimulus, but long-term; difficult to end in ten years, and sure to worsen the fiscal crises in the states and increase the long-term deficit already predicted for the federal budget. This cost estimate is understated, since it is certain that various gimmicks and probably “dynamic scoring” (guessing at potential economic benefits to offset the actual costs of the legislation) will be used to disguise the real cost.
Economic Policy Institute Economic Stimulus Plan Contains provisions that will act as an immediate economic stimulus, and that follow all the criteria above for an effective plan. This is an effort to increase the “demand” side of the economy that will act as a “jump start” to increase economic growth and jobs in 2003. Designed to provide immediate effects that will help over the next year or year and a half, which are temporary. It is intended as an immediate stimulus that will not cause long-term fiscal damage. It is fair and benefits go to important priorities of ordinary Americans.
  • $50 billion in one-time grants to states to preserve health, education, law enforcement, and other services which are daily in the newspapers as being cut or under threat of cuts.

  • $25 billion for school renovation and repair.

  • $25 billion to extend unemployment compensation benefits and expand eligibility to part-time and low-income workers.

  • $10 billion in other measures.

  • A one-time rebate of 3.5% (the amount of payroll tax paid by the worker) of the first $15,000 of wages, which would be paid for by general revenue (costing $65 billion) and would benefit 149 million workers. This would amount to $525 for an individual or $1050 for two workers.
$175 billion in immediate outlays. No hidden costs.
Sen. Max Baucus (D-MT) Stimulus Package Contains provisions that adhere closely to the EPI stimulus guidelines and is aimed at providing an “immediate, effective and responsible economic stimulus package in order to strengthen the economy and reduce unemployment.” Baucus has crafted a plan that he says will “help the economy in both the short-run and the long-run” by providing “significant economic stimulus in the short-run while increasing fiscal responsibility in the long-run.” One element of the Baucus plan is the three-year extension of key Senate budget rules that currently expire April 15. These budget rules require a “supermajority,” or 60-votes, to pass legislation that would increase budget deficits in future years. Baucus argues that preventing long-term deficits also boosts the economy by keeping current long-term interest rates low, thereby encouraging consumer and business spending today.
  • $75 billion in one-time “General Revenue Sharing” grants to the states, with no restrictions on how the states spend this money.

  • $17 billion to extend, through June 30, 2003, unemployment insurance benefits to those whose benefits have expired.

  • $45 billion to eliminate income tax on the first $3,000 of taxable income – low-income individuals will be eligible for a rebate equal to 10 percent of the first $3,000 in earnings.

  • $4 billion in highway construction funds to be distributed to the states for FY 2003.

  • $3 billion for a tax credit of up to 50 percent towards the employer cost of health insurance premiums.

  • $2 billion for small business deductions for 2003 investments in equipment.

  • $14 billion to extend business bonus depreciation through September 10, 2004.
The Baucus plan would cost approximately $160 billion in FY 2003. Baucus emphasizes his plan’s strong long-term fiscal discipline, as evidenced by the smaller 10-year cost of the stimulus proposal – only $135 billion.


The Administration has chosen to disguise more tax cuts for the wealthy and corporations as a “growth” plan for the economy. Fixing the economy, on the other hand, requires a short and fair plan that is big enough to work, but that doesn’t worsen our long-term fiscal situation. It should be directed where the needs are – to protect ordinary citizens from cuts made by desperate states to fix budget shortfalls, the unemployed, and assist low- and middle-income workers. We need a short-term stimulus, not long-term fiscal harm.

It is vitally important that we all work to oppose cuts in revenue that will translate into cuts in the services we care about, whether that is funding for the environment, the arts, low-income assistance, education, nutrition, housing, etc. -- all are under threat. A coalition is currently forming around this issue. To join, contact Adam Luna at Campaign for America’s Future, luna@ourfuture.org. More information should be up on the Campaign for America’s future website in the near future.

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