Hitching a Ride on the Stimulus Train

By :: January 29th, 2009

This will surprise nobody who follows what is optimistically called the budget process, but the economic stimulus package wending its way through Congress has become the vehicle for an astonishing array of stuff.  It’s become even better than emergency supplemental appropriations, which have been used to fund decidedly predictable items, like the decennial census and continuing outlays for the Iraq war (long after the initial shock and awe had worn off).

The census is the most predictable of expenditures.  We’ve been doing it every ten years since 1790.  It is not an emergency.  Katrina was an emergency.  9/11 was an emergency.  The census is not.  But somehow it caught legislators by surprise in 2000.

This year, census funding is not an emergency, but “economic stimulus.” Huh???  We have to do the census.  It’s in the Constitution!  But, apparently, we don’t have to do it well.  So adequate funding would be a job-creating boost to the economy (not to mention all the research and measurement that depends on the data), as my Urban Institute colleague Rob Santos explains.  Apparently, our “data infrastructure” is crumbling just like our bridges and highways so the proposal may be enabling essential spending that would not occur otherwise.

Now, it turns out that another perennial has hitched a ride on the stimulus bill: Patching the AMT. Unlike the census, which has no public constituency, the AMT is always patched because 30 million angry Americans would howl in protest if it weren’t. But the annual fix was shoe-horned into the Senate fiscal relief bill Tuesday afternoon anyway.

Don’t get me wrong.  I hate the AMT.  It’s pointlessly complex, inefficient, and unfair.  Every year we patch it (temporarily increase the exemption levels) in a bizarre game of tax policy chicken.  Its purported revenue (roughly 1 trillion dollars over the next ten years) masks the depths of our looming budget challenges and makes further income tax cuts look more affordable than they really are.  We should follow the advice of President Bush’s tax reform panel and repeal the AMT while broadening the regular income tax base to offset the revenue losses.  Or just replace it with a simpler alternative

Of course, we won’t do either anytime soon.  We’ll continue to patch the AMT—as predictably as we fund the decennial census. 

The patch may be a necessary evil, but it ain’t stimulus.  More than 80 percent of the benefits of the patch would go to the highest-income 20 percent of households, and more than half would go to the top 10 percent.  These households are least likely to spend a tax windfall.  What’s more, since the AMT patch is extended every year, most of its theoretical victims are unaware that they are in the cross-hairs, so extending the fix is unlikely to affect their incomes at all until tax filing time in 2010.

It is not timely, targeted or temporary. 

But the stimulus train is leaving the station and the AMT patch, and other dubious stimulus measures, are trying to hitch a ride.

 

9Comments

  1. Anonymous  ::  5:26 pm on February 2nd, 2009:

    How about adding a topic on the right about the National Debt.

  2. Anonymous  ::  5:44 pm on February 2nd, 2009:

    Let me elaborate on this suggestion a bit.
    Every so often, some analyst with an anti-government agenda comes out with the latest estimate of the per capita national debt at either the personal or household level. This usually comes with great hand wringing about how we are burdening our children (which is true, although as I will demonstrate below, it depends upon how you define our children).
    The per-capita debt figure would be apt if there were no Sixteenth Amendment. Prior to the constitutionalization of the income tax, taxes were calculated (though never collected) based on population size. Aside from tarrifs and excises, the only constitutional tax was a Head Tax. This is no longer the case.
    The reason the United States is able to borrow at current levels, and to do so cheaply, is because of the ability of the income tax to bring in money. While individuals can create and claim tax shelters, they need to be pretty good to evade the tax man for long, as many celebrities and candidates for cabinet posts have found (from Bud Abbott to Tom Daschle). Therefore, the correct way to estimate personal responsibility for the national debt is to divide the Debt held by the public (if not the entire debt, since it must eventually be repaid by general revenue) by income taxes collected (either personal only or personal plus corporate – although because corporate taxes are basically dividends and wages not distributed, to simplify you can use personal only).
    I am sure the number has changed recently. The last time I calculated it, the factor was 9. In other words, if you paid $10,000 in tax, your liability for the national debt is $90,000. If you paid $100,000 in tax, your share of the public debt is a cool million under current tax law.
    What does this have to do with the bailout out? If we bail out rich people by raising the debt, in the long run we do them no good – since it will only increase their taxes or the taxes their children will have to pay. While there is some mobility into the ranks of the super-rich, there is less mobility out of them. Their spending is also more “tax tolerant” – meaning that the rich will not miss a meal because their taxes go up. If you raise payroll taxes without an income tax offset, people will cut back on their spending and slow the economy.
    I hope this provides some perspective on this discussion.

  3. Anonymous  ::  7:39 am on April 3rd, 2009:

    Perhaps, the economic stimulus plan would be successful, if the money to be used would be divided properly in those expenses, such as for infrastructures. I think, the controversial $700billion to be used isn’t enough to bail out the drowning economy. There's been a lot of talk over the last few months about the stimulus that Obama has been talking up for awhile. The intention is to basically make payday loans to various sectors of the economy, in the hopes that it will increase the amount of money being spent, and also create new jobs so that people aren't just sitting around collecting unemployment or potentially starving. If it works, then it is exactly the kind of stimulus we could use.

  4. Anonymous  ::  3:46 pm on November 9th, 2010:

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