Moving forward
White House blog, Saturday, January 31st, 2009 at 4:45 am
In the weekly address, President Barack Obama addressed the latest economic news and urged the passing of an America Recovery and Reinvestment Plan.
He also announced that Treasury Secretary Timothy Geithner is preparing a new strategy for reviving our financial system -- which will not only ensure that CEOs aren't abusing taxpayer dollars, but also get credit flowing and lower mortgage costs.
Watch the address and read the full text below.
http://www.whitehouse.gov/blog_post/moving_forward/
Address to the nation
This morning I'd like to talk about some good news and some bad news as we confront our economic crisis.
The bad news is well known to Americans across our country as we continue to struggle through unprecedented economic turmoil. Yesterday we learned that our economy shrank by nearly 4 percent from October through December. That decline was the largest in over a quarter century, and it underscores the seriousness of the economic crisis that my administration found when we took office.
Already the slowdown has cost us tens of thousands of jobs in January alone. And the picture is likely to get worse before it gets better.
Make no mistake, these are not just numbers. Behind every statistic there's a story. Many Americans have seen their lives turned upside down. Families have been forced to make painful choices. Parents are struggling to pay the bills. Patients can't afford care. Students can't keep pace with tuition. And workers don't know whether their retirement will be dignified and secure.
The good news is that we are moving forward with a sense of urgency equal to the challenge. This week the House passed the American Recovery and Reinvestment Plan, which will save or create more than 3 million jobs over the next few years. It puts a tax cut into the pockets of working families, and places a down payment on America's future by investing in energy independence and education, affordable health care, and American infrastructure.
Now this recovery plan moves to the Senate. I will continue working with both parties so that the strongest possible bill gets to my desk. With the stakes so high we simply cannot afford the same old gridlock and partisan posturing in Washington. It's time to move in a new direction.
Americans know that our economic recovery will take years -- not months. But they will have little patience if we allow politics to get in the way of action, and our economy continues to slide. That's why I am calling on the Senate to pass this plan, so that we can put people back to work and begin the long, hard work of lifting our economy out of this crisis. No one bill, no matter how comprehensive, can cure what ails our economy. So just as we jumpstart job creation, we must also ensure that markets are stable, credit is flowing, and families can stay in their homes.
Last year Congress passed a plan to rescue the financial system. While the package helped avoid a financial collapse, many are frustrated by the results -- and rightfully so. Too often taxpayer dollars have been spent without transparency or accountability. Banks have been extended a hand, but homeowners, students, and small businesses that need loans have been left to fend on their own.
And adding to this outrage, we learned this week that even as they petitioned for taxpayer assistance, Wall Street firms shamefully paid out nearly $20 billion in bonuses for 2008. While I'm committed to doing what it takes to maintain the flow of credit, the American people will not excuse or tolerate such arrogance and greed. The road to recovery demands that we all act responsibly, from Main Street to Washington to Wall Street.
Soon my Treasury Secretary, Tim Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families. We'll help lower mortgage costs and extend loans to small businesses so they can create jobs. We'll ensure that CEOs are not draining funds that should be advancing our recovery. And we will insist on unprecedented transparency, rigorous oversight, and clear accountability -- so taxpayers know how their money is being spent and whether it is achieving results.
Rarely in history has our country faced economic problems as devastating as this crisis. But the strength of the American people compels us to come together. The road ahead will be long, but I promise you that every day that I go to work in the Oval Office I carry with me your stories, and my administration is dedicated to alleviating your struggles and advancing your dreams. You are calling for action. Now is the time for those of us in Washington to live up to our responsibilities.
The Right Stimulus, by Matthew Continetti
ReplyDeleteRepublicans need to provide one since Congressional Democrats haven't.
Weekly Standard, Feb 09, 2009, Volume 014, Issue 19
http://www.weeklystandard.com/Content/Public/Articles/000/000/016/078jbqjt.asp
The economy is in recession. There's no end in sight. The number of unemployed continues to rise. Equities markets are in the dumps. The real estate sector hasn't hit bottom. The banks are drowning in a sludge of toxic assets. Excuse us while we break out the Prozac.
Washington's response? Pathetic. House Speaker Nancy Pelosi let her appropriators out of their cages and had them draft the American Recovery and Reinvestment Act of 2009. This is the economic stimulus package that everyone has been waiting for. And it's a clunker. The more you learn about the economic stimulus plan, the less you like it. Charles Krauthammer called it the "worst bill in galactic history." This is only a slight exaggeration.
What the Democrats have done is write down every single item on their liberal wish list, append dollar amounts next to the items seemingly at random, and call it "stimulus." The president wanted the bill to be free of pet projects and include business tax cuts. But no one told Pelosi's appopriators. They are using the current troubles to push through a decades-old domestic policy agenda. The spending--$50 million for the National Endowment for the Arts, $400 million for global warming studies--demonstrates that the bill has no overarching logic.
Which makes it a major disappointment. Almost everybody agrees that the economy is a mess and that fiscal policy might help tidy things up. But $6.2 billion for "home weatherization"?
The problem with the House plan is that it is ineffective even on Keynesian grounds. Keynes said that, once monetary policy has reached its limit, fiscal policy must take priority. In other words, when interest rates have effectively reached zero, governments must lower taxes and increase spending to rebalance the economy. But the House bill is half-baked Keynes. And it will fail.
It will fail because it is imperfectly designed. A well-designed stimulus meets three criteria. It's large. It's fast. You like what you get out of it. But the Democratic plan is none of these. When you look closely at the House bill, you realize that it's not so big after all. Nor will the money be spent quickly. And the things we get out of it? Small fry.
The Congressional Budget Office projects that the House bill will cost $816 billion. Of that, $248 billion is in aid to states for Medicare and Medicaid, unemployment insurance, and so on. Another $212 billion is in tax cuts. This leaves $356 billion in discretionary spending.
It's hard to argue that the $248 billion in transfers to the states will stimulate the economy. The money is being taken from one pot and put in another so that the states can balance their books and ensure the proper treatment of beneficiaries. It doesn't prime the pump. It just keeps the pump from falling apart.
Then there are the tax cuts. The bulk of them go to the "Making Work Pay" refundable payroll tax credit of $500 per worker. It's unclear whether the credit will be reflected immediately in your paycheck. The government may send out checks as it did in 2001 and 2008. But a change in withholding would be preferable. It wouldn't take long to implement. The taxpayers would have the money quickly. Voilà! An instant raise.
Except that the raise will be peanuts. You'll hardly notice it. If you do, experience suggests that you probably won't spend it. Washington has cut taxes in this manner twice in the last decade. Both times, taxpayers saved the money or used it to pay down personal debt. There was hardly any stimulating effect. The refund doesn't seem to have worked then. Why would another work now?
That leaves the roughly $356 billion in discretionary spending. But not all of it will be spent quickly. The CBO estimates that only $29 billion will be spent by the end of fiscal year 2009. About $116 billion will be spent in fiscal year 2010. This gives us a total of $145 billion in infrastructure and other spending over the next fiscal year and a half. Too little, too late. And therefore unlikely to have much of an impact.
Republicans, then, had every reason to vote against the stimulus bill. And so they did. Unanimously. But that doesn't mean their alternative is much better. The House GOP plan calls for a cut in marginal tax rates, making permanent the Bush capital gains tax cuts, and lowering the corporate tax rate. But marginal tax rates are already low. Cutting them further isn't likely to have a major impact.
Still, the moment is ripe for the right stimulus. There's a market for a thoughtful alternative to the Pelosi-Obama bill. The Democrats want Americans to use deficit spending to reshape society along liberal lines. A Republican stimulus should promote conservative goals.
The plan might start with a payroll tax holiday. Lawrence Lindsey and John H. Makin have done a ton of work outlining why a payroll tax cut or temporary suspension would be good for the economy. Makin writes that a 12- to 18-month suspension in the payroll tax would immediately increase personal disposable income by 3.5 percent. Workers would have an instant raise that would be larger, and last longer, than the "Making Work Pay" tax credit in the Democratic plan.
Just as important, the payroll tax holiday would lower the cost of labor. Freed of the tax, employers would have an easier time hiring workers and paying them well. Yes, cutting or suspending the payroll tax would increase the deficit. So would the Democratic plan. But, if we are going to run deficits, we might as well do so in a way that increases the chances the economy will improve. The payroll tax holiday passes that test.
President Obama should find it hard to resist such a proposal. The payroll tax hits 60 percent of Americans, so a holiday would benefit a large majority of the president's constituents. Furthermore, since the payroll tax is regressive, cutting or suspending it would help the poor the most. Obama could be bipartisan, pro-labor, and pro-business all at once. Catnip to a politician who likes to avoid division.
Republicans also have to overcome some of their aversion to government spending. The flaw in the House stimulus bill is not that it spends money. It's that it spends money too slowly, and what money the bill does spend hardly goes to durable public goods. Thus the GOP's job: Shift the direct spending from useless liberal appropriations to constructive and long-lasting conservative projects.
First, Republicans could propose a more generous unemployment benefit than the one the Democrats are offering. The Republicans want to be the pro-family party. That should include families whose breadwinners are out of work. The money could come from eliminating the endless tax loopholes and subsidies for alternative energy in the current plan. Put the Democrats on the spot. Who do they care about more? Greens or the unemployed?
House minority leader John Boehner scored a victory when he attacked the millions of dollars in subsidies for contraceptives in the original House plan. Boehner put Obama on the defensive. The subsidies were stricken from the bill. Good start. Now up the ante. Why not ask that the contraceptive money go to suburban commuters instead? Send it to state and local governments to help them implement innovative programs like congestion pricing and private-public toll roads.
More than 55 million people live in the Northeast Corridor. They spend most of their lives stuck in traffic. They will be grateful to the political party that stops spending on refurbishing government office buildings and instead uses that money to construct bridges, roads, tunnels, and overpasses. Why? Because they recognize that more pavement shortens commutes, improves productivity, and lets them have dinner with the kids.
Ideally, a conservative stimulus would split direct spending between infrastructure and defense. The American Enterprise Institute's Tom Donnelly has crunched the numbers and made the case for defense stimulus at length (you can find his report on AEI's website). A plan like Donnelly's would build on President Obama's promise to expand the size of the Army and Marine Corps. It would give soldiers a raise and better health care, replenish U.S. weapons inventories, and create American jobs through defense contracting. It would spur investment and job creation in spin-off industries such as aerospace and the IT sector. It would promote the most important public good: security. And economic recovery is more likely in a secure world than in one where American interests are at risk.
The Democrats' stimulus proposals are weak. Those plans barely meet the Democrats' own Keynesian standards for successful fiscal policy. But times are tough. Republicans needn't simply play defense. They can help the unemployed. Cut the payroll tax. Lay pavement. Rebuild our defenses. Watch the economy recover. And reap the political rewards.
Giuliani: Corporate plums help keep NYC afloat
ReplyDeleteJan 30, 2009
http://www.cnn.com/2009/POLITICS/01/30/giuliani.corporate.bonuses/
NEW YORK (CNN) -- Bonuses for Wall Street fat cats are easy political fodder in uncertain economic times, but former New York Mayor Rudy Giuliani said Friday cutting corporate bonuses means slashing jobs in the Big Apple.
"If you somehow take that bonus out of the economy, it really will create unemployment," he said on CNN's "American Morning." "It means less spending in restaurants, less spending in department stores, so everything has an impact."
President Obama admonished corporate America on Thursday after the New York comptroller reported that Wall Street bankers received $18.4 billion in bonuses in 2008.
"This is the height of irresponsibility. It is shameful," the president said. Watch Obama blast Wall Street »
These are the same institutions "teetering on collapse" and asking taxpayers to bail them out while taxpayers are dealing with their own tumultuous finances, he said.
Last year, Congress passed a $700 billion bailout for financial institutions, and an $819 billion economic stimulus package is presently making its way through the Senate after garnering House approval Wednesday.
"There will be time for [bankers] to make profits, and there will be time for them to get bonuses -- now is not that time," Obama said of the bonuses, which were about equal to those of 2004.
When Giuliani ran for the GOP presidential nomination, pundits said his stances on issues like abortion rights separated him from self-proclaimed Reagan Republicans in the field. Not up for debate is Giuliani's alignment with the 40th president on "trickle-down economics," the theory that keeping the rich wealthy creates jobs and solvency for the lower classes.
"Those bonuses, if they are reversed, are going to cause unemployment in New York," the self-described fiscal conservative said. "I remember when I was mayor, one of the ways in which you determine New York City's budget, tax revenue is Wall Street bonuses.
"Wall Street has $1 billion, $2 billion in bonuses, the city had a deficit. Wall Street has $15 billion to $20 billion, New York City had a $2 billion, $3 billion surplus, and it's because that money gets spent. That money goes directly into the economy. First of all, it gets taxed as income. Secondly, it gets taxes again when somebody buys something with it."
In announcing the Wall Street bonuses Wednesday, State Comptroller Thomas DiNapoli said the $18.4 billion represented a stark dip from 2007's bonuses, which totaled $32.9 billion
"A 44 percent decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues," DiNapoli said in a statement. "The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It's painfully obvious that 2009 will probably be another difficult year for the industry."
While city incomes taxes are common in Iowa, Indiana, Maryland, Michigan, Ohio and Pennsylvania, they are an anomaly in most parts of the country, according to a 2008 report by Tax Foundation, a Washington-based think tank. New York City and Yonkers are the only cities levying income taxes in New York state, the foundation said.
New York Mayor Michael Bloomberg said Friday the city needs to close a projected $4 billion budget gap in fiscal year 2010. Skyrocketing unemployment is partially to blame, he said, projecting that 300,000 jobs will be lost in the city by the second quarter of 2010.
Of those, 46,000 job losses are expected to have come from Wall Street, a particularly devastating blow to the economy because those in the financial community tend to pay double or triple the taxes paid by employees in other industries, he said.
"When Wall Street catches a cold, it's a very serious illness to us," Bloomberg said.
In 2008, New York had $41.2 billion in expenses and $42.8 billion in revenue, he said. Projections suggest that in 2010 the city will have $43.4 billion in expenses but only $37.1 billion in revenue.
Bloomberg proposed several measures, including an increase in the sales tax from 8.375 percent to 8.75 percent, in an effort to balance the budget. Bloomberg has already slashed $3.7 billion in spending since last year, an administration official said.
In recent months, the mayor has tried to shore up city finances by raising hotel taxes and pulling back a property tax cut set to expire this summer, the official said.
CNN's Kiran Chetry and Eliott C. McLaughlin contributed to this report.