The best news on the economic and budget front in December was the failure of Republicans to ram their big corporate tax-cut package through Congress in the name of "stimulus." The bad news was that nothing was done to boost the economy and help those most hurt by the recession.
What went wrong? Unfortunately, press reports have offered little help in sorting things out, since reporters apparently believe it is their professional duty to report both sides' assertions without qualifying them with factual information. So here's a chronology of what really happened.
Stage 1: The Deal Soon after the terrorist attacks in September, the White House and congressional leaders of both parties agreed on a set of principles for a stimulus package. Principle one was cost: a total of about $60 billion to $75 billion. Principle two was that the measures should be quick (to help the economy now) and temporary (to avoid exacerbating our long-term budget problems). Principle three was that most of the package should be directed at helping those most hurt by the recession by putting money into the hands of people likely to spend it.
Many, including me, were shocked but gratified at this new display of sensible bipartisanship. The press loves this story line so much that it sticks with it long after events have made it obsolete.
Stage 2: The House Reneges In the House, responsibility for fulfilling the bipartisan deal was assigned to the Ways and Means Committee, whose ultrapartisan chairman, California Republican Bill Thomas, is a hard-line believer in what he calls the theory of "circulation." According to Thomas, it doesn't matter where money goes initially, since all money eventually "circulates" to everyone. That being the case, Thomas concluded, he might as well make the initial deposit into the bank accounts of big business.
In October, the House approved Thomas's bill: a huge collection of corporate and upper-income tax cuts, many of them permanent or quasi-permanent, with an estimated cost of $212 billion over three years--triple the agreed-upon limit. Aid to the needy was almost entirely dropped--because, as House Majority Leader Dick Armey, Republican of Texas, put it: "The model of thought that says we need to go out and extend unemployment benefits and health insurance benefits and so forth is not, I think, one that is commensurate with the American spirit here."
The press unhelpfully reported that the $212-billion House bill has a price tag of $100 billion--just its first-year cost--a spin that minimized how completely the House betrayed the original bipartisan deal.
Stage 3: The Deal Breaker Following the House passage of its bloated tax-cut bill, Senate Democrats fashioned a stimulus package that focused on tax breaks for low-income workers and expanded unemployment and health-insurance assistance for people who lost their jobs. As an olive branch to Republicans, the Democrats' $80-billion measure also included $25 billion in corporate tax breaks (for 2002 only).
At this point, however, even Republicans who had been willing to honor the original bipartisan agreement jumped onto the House GOP bandwagon. President Bush announced he would veto any stimulus bill that deviated from the House's regressive tax-cut plan. In the Senate, Republicans blocked the Democratic bill as a violation of budget rules, taking the odd position that only something even more violative of the budget rules á la the House bill would be acceptable. Despite the widening gap between the parties, the press reported that a bipartisan deal remained likely.
Stage 4: Final Negotiations Fail As the year ended, House Republicans rushed through a "revised" bill. It added a little help for the unemployed, plus an unworkable health-insurance tax credit, but it held these provisions hostage to almost all the corporate tax breaks that were in the original House plan. Democrats refused to accept this so-called compromise.
"There's very little stimulus in this [House] stimulus package," Senate Majority Leader Tom Daschle explained, emphasizing that the GOP plan was "three times ... [the] $75-billion limit" yet provided "very little help" to those who most need it. The press reported that the impasse stemmed from a disagreement over the details of how to provide health-insurance subsidies to the unemployed.
The Aftermath Democrats stuck to the outlines of the original bipartisan deal. Besides being right on the substance, the Dems were buoyed by polls and focus groups showing that the huge corporate tax breaks in the Republican plan are extremely unpopular--if and when people find out about them. For their part, Republicans now hope that the public was too distracted to notice what their plan actually entailed. The official GOP position on why there was no stimulus bill is that Democrats "inexplicably" blocked needed aid to the unemployed and the uninsured!
Inexplicably, the press has dutifully reported these statements as if they were believable.