Rehberg would make up lost revenue by using unspent stimulus money
TOM LUTEY Of The Gazette Staff | Posted: Thursday, February 18, 2010 12:06 am
One year after the passage of the federal $787 billion stimulus bill, Rep. Denny Rehberg, R-Mont, wants to scrap the measure in exchange for payroll tax cuts.
Rehberg, crisscrossing the state on a jobs tour, is advocating a 50 percent cut in payroll taxes, with leftover stimulus funding being used to backfill the $1 trillion loss in federal tax collections. He would also use money repaid by banks targeted by the 2008 Troubled Asset Relief Program to make up the difference.
"We know that the stimulus package that has been passed, only a third of the money has been spent," Rehberg said. "The other two thirds is sitting out there. Why don't we suspend that? And why don't we take the leftover and the repaid TARP money from the bank bailout, which we didn't think was the right thing to do, and use that?"
Rehberg floated the idea with The Gazette editorial board Tuesday and last weekend at the Republican Roundup in Great Falls.
Popular in the Bush era, payroll tax cuts are on the table again in Washington as a resurgent Republican minority flexes its muscle on a second round of federal economic stimulus legislation. Sens. Chuck Grassley, R-Iowa, and Max Baucus, D-Mont., last week suggested a draft bill that would, among other things, cut payroll taxes for businesses hiring unemployed workers. The $85 billion proposal was discarded by Senate President Harry Reid, D-Nev., who said too many of the tax breaks offered lacked job-creating potential.
Reid suggested a much smaller $15 billion proposal that also included payroll tax cuts for businesses hiring unemployed workers. Sens. Orrin Hatch, R-Utah, and Charles Schumer, D-N.Y., earlier floated the 6.2 percent Social Security payroll tax waiver for businesses hiring any worker unemployed for at least two months and a $1,000 business tax credit for every new employee retained for at least a year.
Things are different in the House, which passed a $155 billion jobs bill in December, tapping $75 billion leftover from TARP. That bill focused on "shovel ready" construction projects and federal aid to prevent job losses in public schools, police departments and other government services. The bill passed 217 to 212, and House Democrats say they aren't interested in revisiting the matter to accommodate payroll tax cuts.
Rehberg said Republicans first need a seat at the jobs bill table so they can raise the issue of payroll tax cuts. If the discussion began, chances are slim a 50 percent payroll tax cut -- the largest proposed -- would result in the House where Democrats have a strong majority.
Party differences in how to stimulate an ailing economy are entrenched and largely incompatible, say economists who see disadvantages to either cutting payroll taxes or launching large government projects to treat the recession.
"You essentially have consumer demand, business demand, investment and government spending," said Larry Swanson, economist for the O'Connor Center for the Rocky Mountain West, who explained that both political parties turn to the government when the economy sags.
The difference is that Democrats prefer government-funded projects that target specific parts of the economy, Swanson said. Frowning on enlarging the role of government, Republicans prefer tax cuts, leaving the workers and employers to take the tax relief provided and find their own way.
Swanson likes the government-funded projects included in the 2009 American Recovery Act passed a year ago Wednesday. Many of those projects boosted the construction industry and related business that comprise one of the economy's hardest hit sectors. However, construction spending amounted to roughly 30 percent of the Recovery Act, also known as the stimulus bill. To be more effective, those projects should have accounted for closer to 60 percent, Swanson said.
"I'm a believer that we were way overdue for infrastructure spending," Swanson said. "The idea is you're creating benefits good for 30 to 40 years."
A payroll tax cut would have been more immediate. Businesses and workers would have felt the difference immediately as payrolls reflected the decreased taxes in small increments each payday for as long as the tax cut lasted.
The benefits of a payroll tax cut are more short term and more likely to be seen in retail spending, Swanson said. But it's hard to say how much money recession-minded consumers, focused on savings and paying off debt, would put into the retail cash stream. It's also difficult to determine how quickly a payroll tax cut would benefit the 14.8 million unemployed Americans, who wouldn't experience the benefits of fatter paychecks and might not see immediate job benefits outside of the retail economy.
"The tax cut does seem to have a faster impact," said Paul Polzin, a Montana Bureau of Business and Economic Research economist. "There's really some question as to how much it really increases spending."
A payroll tax break launched by congressional Democrats and the Bush administration in 2008 was thought to have been spent on bills and savings more then new purchases that would have stimulated the economy.
Conversely, Polzin said the Democrat's favored plan of funding projects takes time to get rolling and some of those projects are likely to arrive after the economy begins to improve.
Both Swanson and Polzin see merits in directing payroll tax cuts toward businesses hiring currently unemployed workers because that approach directly addresses the jobless rate.
Rehberg said until Republicans are allowed to make amendments to the House jobs bill, a payroll tax cut there isn't likely.
