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Defending Mitch Daniels' $450 billion stimulus plan

mitchdanthreefinger.JPG

Jonathan Chait isn't quite so pleased with Mitch Daniels's stimulus proposal and takes me to task for saying some nice words about it. But Chait and I don't really disagree. Daniels said his proposal would pay for itself twice over. In my post, I wrote that "the CBO wouldn't agree with that assessment." Chait doesn't quote that part of my post, but he goes on to methodically detail why the CBO wouldn't agree.

In doing, however, he plays down what's important about the proposal: It recognizes there's an economic emergency, and it specifies a major stimulus policy that actually would do improve the situation. As Chait says, a one-year payroll tax holiday is equal to $934 billion. [Update -- In an interview with me, Daniels said he's only proposing a holiday on the worker side of the tax, and anticipated it'll raise about $350 billion] Mark Zandi estimates that a payroll-tax holiday will have a multiplier of 1.22. In other words, Daniels is functionally proposing $427 billion in new stimulus spending. He's also proposing the capital investment write-off that the administration is announcing this week. Put those two together and you're looking at about $450 billion in stimulus spending: That's much larger than anything the administration has recently proposed.

As for paying for it, there's something else I'd point to in Daniels' op-ed: He uses the term "emergency" five times. That reads like more than mere vivid writing.

Recall the fight between the Democrats and Republicans over whether the unemployment insurance should be considered "emergency spending." Daniels, a former OMB director, knows exactly what the term "emergency" means when talking about government programs: It means they don't have to be offset. So when he calls his program "a time-limited, emergency growth program," he's saying something specific: It doesn't need to be offset inside the budget window.

So what does he mean when he says the bill will offset itself twice over? I'm trying to get an answer on that. Maybe he thinks it'll offset outside the budget window. Maybe he thinks allowing the president to impound spending will save a lot of money over the next 50 years (Chait is wrong on the constitutionality of this, by the way: The president was able to impound spending until 1974, when Congress passed the Budget and Impoundment Contral Act). Maybe he thinks the payroll tax cut will come fairly close to paying for itself. Either way, I don't think the policies in his op-ed will bring in $1.8 trillion in the next 10 years.

But I'm legitimately less interested in that part. Over the past few months, the severity of the crisis has forced Democrats to go back to the well for more stimulus. They need Republicans this time, so they're signaling an openness to Republican proposals like a payroll-tax cut and a write-off for capital investments. But because Republicans have a midterm to win, they're abandoning those policies just as quickly.

What Daniels is doing -- and he deserves some credit for it -- is stepping into the middle of the discussion and using his credibility among conservatives to reestablish a conservative position that admits the existence of the crisis and the necessity of large-scale government action. As I wrote this morning, Daniels's package is a lot closer to the Obama administration than his op-ed would have you believe -- though that's because the administration has moved substantially to the right. It also doesn't pay for itself, at least as far as I can see. But it's a much more constructive proposal than we've seen from any other major Republican. In fact, its sheer size makes it a more constructive proposal than what the Obama administration released this week.

Photo credit: AP Photo/Rogelio V. Solis.

By Ezra Klein  |  September 8, 2010; 4:26 PM ET
Categories:  Stimulus  
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Next: Mitch Daniels: 'We all share a common problem'

Comments

If he's paying for it by spending cuts it is not stimulus, full stop. It makes no sense on its own terms. You're the one giving him a 10 year horizon, not him.

Amazing you'd trust the Nation's worst ever OMB director.

And that is not how you use a multiplier to determine the spending amount.

Posted by: endaround | September 8, 2010 6:09 PM | Report abuse

He's cleared a very, very low hurdle for offering somewhat serious, but concrete, policy solutions. Now, the fact that parts of inconsistent, show poor economic logic and the math doesn't add up, just shows how low the hurdle really was.

Posted by: ctown_woody | September 8, 2010 6:47 PM | Report abuse

Ezra, as of this comment, your post keeps using "trillions" in the second paragraph. While I agree that would be mighty stimulating, I believe you mean "billions" (key Dr. Evil laugh).

Posted by: Jaycal | September 8, 2010 7:25 PM | Report abuse

Slow down, Ezra, and get your "t"s, as in "trillion," and your "b"s, as in "billion" straightened out in this post. As it is, the post is gibberish, and you're better than that.

Posted by: fredbrack | September 8, 2010 7:55 PM | Report abuse

I like ur reading and riting but have a problem with ur rithmetic. You measure the size of a stimulus by the predicted impact on GDP. That's just not the way the words are used. You would call 50 billion in infrastructure spending a 75 billion stimulus (at least).

Redefining "size of this stimulus" just creates confusion. They are described by their direct impact on the deficit.

I support Daniels's proposal and basically agree with you completely on substance.

Posted by: rjw88 | September 9, 2010 7:03 AM | Report abuse

l'shana tova
http://www.youtube.com/watch?v=0jR20-0sy1Y&feature=related

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peace joy lovingkindness compassion

Posted by: jkaren | September 9, 2010 7:50 AM | Report abuse

How does a payroll tax holiday on the employee side encourage companies to hire more workers? Seems to me the break should have come on the employers' side. Even then, it has great potential to create a lot of short-term hires, as these people would just be laid off when the tax rate goes up again, if the core economy hasn't improved.

Another problem with playing with the Social Security tax is the potential for Republicans to use even a small success as an excuse to install a more permanent cut that could make Social Security even less solvent, thus spurring a move toward privatization.

Posted by: dlk117561 | September 9, 2010 8:43 AM | Report abuse

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