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.
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.
