A Bailout for the Rest of Us
One way or another, many of the questions at tomorrow night’s presidential debate are going to boil down to this one: how do we get out of this mess? There are numerous issues – from immigration to civil justice – that the candidates haven’t fully debated yet, but I suspect those will again take a back seat to the tanking stock market, job loss, home foreclosures and frozen credit. In other words: the mess. It makes everything else a bit hard to focus on.
Last week, Mark Winston Griffith weighed the pros and cons of McCain’s mortgage plan. Today, I’ll take a first look at Obama’s “Rescue Plan for the Middle Class,” a document released Monday that includes a mix of new and old proposals.
The name itself suggests that Obama understands that the nation faces not just a home mortgage crisis, or a credit crisis, or a bank crisis, but a broad economic crisis impacting the ability of American families to attain and hold onto a middle-class standard of living. We need an economic rescue that addresses all of this. And the Obama proposal is a big step in the right direction.
• An extension of unemployment insurance benefits for an additional 13 weeks. 800,000 laid off workers have already exhausted their federal benefits without finding work. Extended benefits both provide direct help to those most affected by the failed economy and represent one of the most effective and cost-efficient means of stimulating the economy.
• A $25 billion investment in infrastructure. In addition, to making needed infrastructure overhauls and improving the environment by implementing energy-efficient repairs the Obama campaign estimates that the investment would create or save 1 million jobs. The investment complements Obama’s larger and longer-term proposed green jobs program.
• Reforming the bankruptcy code to let judges modify the terms of home mortgages. As DMI has argued, this is good policy that would save 600,000 homeowners. And it’s also good politics, supported by 62% of self-identified middle-class Americans.
• A 90-day moratorium on foreclosures. The least that banks getting bailed out with taxpayer dollars can do is halt foreclosures and try to work out an agreement.
• $25 billion for state governments, and a new federal guarantees to ensure that states and local governments can borrow funds, if necessary. State and local governments are on the front lines of the economic crisis. They face plummeting tax revenue even as more citizens turn to them for help. What’s more, states are facing the same challenges as business in borrowing funds to sustain short-term operations. The result? Many states are cutting education, health, and other programs that support children, the elderly, and the poor. Obama frames assistance to states as helping to “avoid painful property tax increases” but more importantly it would prevent devastating service cuts and help to make sure the downturn isn’t worsened by cutbacks in state spending.
Those are some of Obama’s greatest hits. But there’s some dross mixed in with the gold. Policies that are likely to be less effective include tax cuts aimed at increasing investment by small businesses. As the Economic Policy Institute has pointed out, businesses invest because there is demand for their products and services. In the absence of this demand, tax cuts are unlikely to make a difference. Indeed, studies suggest that reducing capital gains for businesses (as Obama proposes for small companies) and other investment incentives provide little economic growth for each dollar invested. Tax cuts for small business may sound good, but they have little economic rationale. And unlike many of his other proposals, Obama doesn’t tell us how much these tax cuts will cost.
Still, if that's what it takes to get a bailout for the states, or get some much needed cash into the pockets of people thrown of a job, a few unproductive tax cuts are definitely worth it.
Stay tuned for further analysis of Obama’s plan in the coming days.
Amy Traub: Author Bio | Other Posts
Posted at 2:03 PM, Oct 14, 2008 in Economy | Election 2008 | Employment | Housing | Infrastructure | Middle-class squeeze | Progressive Agenda | States | Tax Policy
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