Obama's Second Stimulus? No Thanks

Obama's new stimulus plan -- with infrastructure spending and payroll tax cuts -- will be just as unsuccessful as past attempts to jump-start the recovery.

The Obama administration, congressional Democrats and more than a few congressional Republicans are reportedly considering new “stimulus” measures.   It’s a bad idea. The additional infrastructure spending that many Democrats want and the payroll tax cuts that the Obama administration has floated (probably with the intention of attracting Republican votes) simply aren’t advisable.

Additional infrastructure spending wouldn’t do anything for several years to come. Despite promises and legal mandates that money from the 2009 stimulus bill go for “shovel ready” projects, even the government’s own statistics show that less than half of the “contracts, grants and loans”--mostly infrastructure projects--created have even been awarded. And much of the money awarded still hasn’t been spent. Insofar as infrastructure spending is an economic stimulus in itself, and economists aren’t conclusive at that point, states have plenty of cash to carry out the infrastructure projects they have. Whatever the merits of additional infrastructure projects—and suburban freeways, freight-rail lines, and the electrical grid all probably could use more investment—the planning lag means that appropriations today simply wouldn’t stimulate the economy even when judged by the models of economists who advocate for such spending.

Payroll tax cuts have a more conservative appeal but, if infrastructure led economic stimulus has disappointed, stimulus via tax cuts and rebates has an even worse record. Most of the funds provided through the 2009 Obama’s stimulus to date has come in the form of tax cuts and rebates while the Bush administration’s last-ditch effort to prevent a recession involved sending most American families a $1,500 check. None of it has worked. Cutting payroll taxes now will only deepen the already grave fiscal problems of Social Security and Medicare. In the long term, systematic reform of the programs could pave the way to lowering the taxes that support them but cutting taxes right now would give the programs even less of the flexibility and room for free market reform.

In short, even if some case exists for another stimulus or “jobs” program—and there’s plenty of reason to be dubious about both—payroll tax cuts and infrastructure spending just aren’t the way to do things.