WASHINGTON -- As Congress and the President consider measures to help stimulate the economy, The Concord Coalition said today that any such legislation should be carefully designed to have its maximum effect in the very near future, minimize costs in later years, and provide the greatest stimulus for the amount of money spent. In Concord's view, fundamental changes in long-term tax or spending policy should not be undertaken in the context of an effort to apply quick, short-term, fiscal stimulus.
“Before additional steps are taken in the name of stimulating the economy, it is important to recognize that a great deal of fiscal and monetary stimulus is already in the pipeline. The tax cut enacted in June will lower revenues by about $70 billion in fiscal year 2002, and new spending approved since September 11 will increase outlays by at least $40 billion and probably more. These measures, when combined with automatic safety net adjustments in the budget for programs such as Unemployment Compensation, Food Stamps and Medicaid, may well pump over $130 billion worth of fiscal stimulus into the economy in 2002 on top of the substantial monetary stimulus provided by the Federal Reserve Board since January,” said Robert Bixby, Executive Director of The Concord Coalition.
“Limited additional measures may be appropriate, particularly if designed to put money into the hands of those most likely to spend it. But fundamental policy changes that are not specifically targeted to short-term stimulus should await the President's next budget request, which will come in February when we'll have a better idea of the impact September 11 has had on the economy. By then, the natural healing powers of the American economy may have done a lot to remedy the current economic slowdown. In addition, the cost of the war on terrorism should be more fully understood” Bixby said.
“Most of all, what must be avoided is a costly bargaining process in which support for bigger tax cuts is exchanged for higher spending and vice versa. In this time of crisis, attention has been understandably diverted from the need for long-term fiscal discipline, which imposed a sense of restraint prior to September 11. But long-term discipline is still needed to prepare for the looming challenges of Social Security and Medicare. It should not be squandered on dubious, and perhaps unnecessary, fiscal stimulus plans,” said Bixby.
“Deficit spending will probably return this year for the first time since 1997 because of the slower economy, the amount of money already committed to fiscal stimulus, and the need to spend even more on national defense, homeland security, and disaster relief. Whether this turns out to be an understandable one-time event or a fiscally irresponsible return to large chronic deficits will be determined, in part, by whether Congress and the President can resist the temptation to abandon long-term discipline as they respond to legitimate short-term needs,” Bixby added.