Two Cheers for Obama's New Stimulus

Obama's new tax reform proposals should help accelerate spending but his pork-laden, slow-acting infrastructure fund plan will do little to spur growth.

President Obama is a brilliant man. He has many smart advisors. Quite often, however, they’ve had bad ideas. Yesterday, they proposed some good ones. For the sake of the country, Republicans should support the administration’s tax ideas and try to score political points by opposing the President’s infrastructure boondoggle proposals. Let’s review the facts.

The President’s first idea, a permanent R&D credit, won’t help the economy but will improve the honesty of the budget process. The credit, originally introduced in Ronald Reagan’s historic 1981 economic package, encourages private sector innovation and creates jobs. It has been renewed 14 times, has massive bipartisan support, and every president since its creation has advocated making it permanent. Congress has always demurred because keeping it as a “temporary” tax credit that “expires” provides a way to fudge budget projections for the future. Since the credit is here to stay in any case, simply keeping the country’s books in order mandates making it permanent.

Obama’s business expensing proposal—an idea taken directly from the Bush administration’s playbook—is also good policy. By letting businesses write off investments in physical capital immediately, it promises to accelerate spending and, unlike slow moving, infrastructure expenditures, will (by definition) truly fund the most “shovel ready” projects.  It also makes sense.

Republicans wanting to score political points, however, shouldn’t count themselves out of luck. The administration has proposed lots of new infrastructure pork along with the tax policy changes. Given that so many stimulus infrastructure funds remain unspent, shoveling more money into infrastructure will have next-to-no consequence for economic growth but will run up the already-too-large deficit.  Making a stand against the infrastructure plan while simultaneously endorsing the president’s tax policy proposals would make it clear that Republicans stand for principle and good policy. Simply obstructing them will show that Republicans do not know or care about the business of actually governing.