This past week, I completed my reading of the 1073-page American Recovery and Reinvestment Act, and I am not feeling too stimulated. The bill reminds me of a movie that I once seen. The main character was dying from an infection, but the doctors could not locate the vital medication to save his life. On February 17, 2009, President Barack Obama gave Americans a “shot in the arm”, but I am unconvinced the proper medication was in the needle.
If you were to study the actions of the Roosevelt Administration during the 1930’s, then you will find that the economy did expand for a short period of time after the New Deal was signed into law. However, the size of government grew and remained large after the creation of entitlement programs such as Social Security. The fiscal stimulus package signed by Obama represents the largest spending bill ever ($790 Billion) and creates a number of new entitlement programs that will be challenging to roll back once the economy recovers. The bill includes $5 Billion to create a new Temporary Assistance for Needy Families (“TANF”) welfare program emergency fund. The fund will provide money to States that increase TANF caseloads, but waives the requirements that obligate States to consider rising caseloads when determining TANF work requirements. This legislation will encourage States to increase caseloads without increasing the number of individuals required to obtain work, which was a key component of the 1996 welfare reform under the Clinton Administration.
There is about $144 Billion in the bill that is appropriated for state and local fiscal relief. This money will help with extending unemployment insurance and ensuring that Medicaid benefits are not cut by States dealing with budget shortfalls. However, the Center on Budget and Policy Priorities estimate the total budget deficit for the States collectively for FY’09 is $43 Billion and the federal government’s deficit is projected at $1.2 Trillion – or 27.5 times greater than the total State shortfall. I fail to understand why the federal government absorbed such an outsized liability when their balance sheet is already stressed.
The bill contains billions in refundable tax credits that will provide direct payments to individuals that pay little or no income taxes. However, there are no provisions in the bill to reduce payroll taxes or cut taxes on small or big businesses. Unquestionably, most economists have stated that tax cuts for individuals and businesses will do more to spur growth, create jobs, and stimulate the economy. Obama predicts that his plan will create or save 4 million jobs – $197,500 per job. I am certain that most business owners in the private sector can create jobs with less of an investment.
Despite claims by Obama that most of this money will go to infrastructure spending to create jobs, a small share of the total $790 Billion will go to transportation infrastructure – $47 Billion or 5.9% and only $27.5 Billion or 3.4% for highway construction. The bill also largely smells of “pork” or pet projects that Congressional members have in their home state. For example, $50 Million for the arts, $1.3 Billion for Amtrak, $400 Million for NASA, $25 Million for the Smithsonian, and $500 Million to replace a computer at the Social Security Administration. After detailed review, I believe that 10% or around $8 Billion in the bill is pork spending on projects that are unrelated to immediate fiscal stimulus.
Undoubtedly, President Obama achieved a permanent place in history for pushing through a large spending package in record time – four weeks into his presidency. According to the Federal Reserve, $790 Billion is almost as much as all the money currently in circulation in the U.S. ($829 Billion). I implore my fellow Americans to consider how this money will be repaid. At some point, the federal government will have to raise taxes dramatically to cover the $300 Billion in debt service that must be paid on this new spending over the next ten years. Not to mention, the Defense appropriations measure passed last fall, which appropriated $636 Billion. In addition, Congress appropriated $700 Billion through the TARP this past October. All of this spending has forced Congress to once again increase the statutory limit on public debt from $11.3 Trillion to $12.1 Trillion or just under 90% of GDP.
President Obama and his fellow Democrats inspired millions of Americans to believe in “hope” and “change”, which catapulted his colleagues into control of Congress and him into the White House. Now, I routinely hear about “catastrophe” and “unrelenting crisis” as they use the current events to misguide us into a new era of big government. For a man whose political slogan promised “Hope not Fear”, Barack Obama is doing a great job of scaring people.