Last night’s House vote on the Democratic stimulus package, where not a single Republican voted in favor, was another shot across the bow for this incredibly unmanageable $900 billion behemoth of a program that truly will not stimulate the economy.
Team Obama is now regrouping in the face of mounting criticism of this package.
GOP economist Martin Feldstein revoked his prior support of a stimulus plan in this morning’s Washington Post. “In its current form,” Feldstein wrote,“[the plan] does too little to raise national spending and employment. It would be better for the Senate to delay legislation for a month, or even two, if that’s what it takes to produce a much better bill. We cannot afford an $800 billion mistake.”
Clinton economic adviser Alice Rivlin made the same point yesterday in testimony for the House Budget Committee. Her message: Divide up the package and slow down the process.
Former Ronald Reagan and George W. Bush economist Larry Lindsey criticized the package in this morning’s Wall Street Journal. He said the plan “is heavily weighted toward direct government spending, transfers to state and local governments, and tax changes that have virtually no effect on marginal tax rates.” Lindsey proposes a big payroll tax cut that would slice three points off the rate for both the employer and the employee.
Rush Limbaugh also makes an appearance in today’s Journal. He has a clever idea to give Obama 54 percent of the $900 billion package — equating that amount to the new president’s electoral majority — while 46 percent, which was John McCain’s electoral tally, would go to a tax-cut plan that would halve the U.S. corporate tax rate and provide a capital-gains tax holiday for one year, after which the investment tax would drop to 10 percent.
And Sen. Richard Shelby told CNBC that Washington should shelve the stimulus package and instead attack the banking and credit problem first — probably with a government-sponsored bad bank that would relieve financial institutions from their toxic-asset problem.
Scott Rasmussen’s latest poll shows that public support for the humongous stimulus package has dropped to 42 percent. And while it remains to be seen whether Republicans can slow this package down, that certainly would be a very good idea. The long-run financial consequences of this package will be very negative and will certainly imply higher future tax rates — a prosperity killer feared by Arthur Laffer. And the short-run implications of the plan have so little economic-growth potential while all the social spending will get baked into the long-run budget baseline. So Republicans should do everything they can to slow this package down and curb its mistakes.
It was Sen. John McCain on Fox News last Sunday who really started the stimulus revolt when he said he couldn’t support the package. He also called for less spending along with a large corporate tax cut. Meanwhile, House Republican leaders John Boehner and Eric Cantor have begun a successful opposition drumbeat by attacking congressional Democrats rather than directly hitting President Obama. Now all eyes will turn to Republican Senate leader Mitch McConnell to see if he can keep up this drumbeat.
I will be interviewing Mr. McConnell on The Kudlow Report tonight on CNBC.