"In contrast to the vitriolic rants you'll find on some political blogging sites, Palmer gives in-depth analysis and commentary." --Dan Cook, The Free Times


The Stimulus and Republican Rhetoric

President Obama is wrangling with Congress over the economic stimulus bill currently being negotiated. In addition to providing new information about Obama's management style, his influence, and his control over congressional Democrats, the debate has also revealed a new power center in the Senate: moderate Republicans and conservative Democrats.

After being purged in the 2006 and 2008 elections, there are not many moderate Republican congressmen and senators left. This leaves much more conservative minorities in the House and Senate. The Republican House minority unanimously voted against the first version of the economic stimulus bill, and Senate Democrats are counting on a small handful of Northeastern moderates to get a bill that could receive 60 votes.

In light of the vote in the House and the struggles Democrats are having in the Senate, Republicans are feeling emboldened. Even though they have very little legislative control, they are wielding a disproportionately large influence over the debate and are outmaneuvering the majority Democrats. As a result, support for the stimulus is waning. Political analysts are giving the Republicans credit for their current message.

The Republican economic argument is simple: The solution to the struggling economy is more tax cuts. Voters have heard these arguments before. By putting more money in people's paychecks because of lower tax rates, they could put that money back in the economy by spending it as they see fit. After all, they know how to spend their money better than big government does.

There are several problems with this argument, however.

1. A tax cut is useless to a person without a job. Given the rising unemployment rate, Republicans risk looking out of touch the more they push the tax cut issue. If you just got laid off, a tax cut will not put more money in your pocket at all. Republicans may argue that corporate tax cuts would allow them to hire more workers. However, when these companies were given billions of dollars of bailout money last fall, they did not hire more workers. They wasted the money on acquisitions, bonuses, and luxuries that turned out to be public relations disasters. Why would companies be more responsible taking advantage of a tax cut than they were with a gift from the taxpayers?

2. A company has no reason to hire more workers if demand is down. This dovetails from the point mentioned earlier. Republicans emphasize personal responsibility. It would seem that a responsible company would not increase their expenses at a time when their revenues are down. A responsible company would probably use any extra money to pay off debts or save it to cover expenses in the event of an emergency. Unlike former House Speaker Dennis Hastert's claims of laziness, people want to work. But companies have to have a reason to hire them.

3. Even though the argument sounds good, voters rejected it last fall. It is hard to argue with "putting more money in people's pockets." (From a public relations standpoint, the Democrats have a much harder case to make in terms of defending giving tax money to people who don't pay any income taxes.) However, Republicans up and down the ballot ran on the same argument and lost big for the second straight election. Voters are well aware of the Republican arguments concerning the economy, and they concluded in 2008 that they want new solutions. President Obama is not shutting Republicans out of the debate because they're Republicans; he's shutting out their ideas because tax cuts alone are not what the public wants.

Republicans are running on two issues right now: tax cuts and wasteful spending. It is true that support for the economic bill is waning. However, because of the three arguments listed above, Republicans have to be careful not to misinterpret their support. The tax cut argument probably doesn't play beyond the Republican base. Taxes will always be too high for them. Running against wasteful spending seems to be a much more potent issue for them. The Republicans' argument is definitely resonating with the public. The problem is, they are running the risk of stressing the wrong one. Voters might not be in lockstep with congressional Democrats or President Obama, but they do want "change." More tax cuts is not "change."

9 comment(s):

dr_timbabwae said...

In my mind, the Republican party is dead. The neocons sucked it dry and this is all that is left. They have run out of ideas after being left holding the bag for all the excesses of Bush years. They would be better to dissolve the party and reorganize conservatism with fresh ideas, if those can be found.

Brad Neuberg said...

It's really refreshing to find a political blog that attempts to have journalistic neutrality combined with logical analyses and viewpoint. Great post!

Martin Magnusson said...

It's embarrassing to admit this, but I had never considered problem #1, i.e., "A tax cut is useless to a person without a job."

It's a strong argument.

Suggestions4Obama.com said...

The number of unemployed persons (11.6 million) and the unemployment rate (7.6 percent) rose in January. Over the past 12 months, the number of unemployed persons has increased by 4.1 million. The Department of Labor reported today that nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent. Payroll employment has declined by 3.6 million since the start of the recession in December 2007, .... most of this mess happening only in past three months! And some wonder Obama is pushing so hard for a stimulus package. The Herbert Hoover approach, do nothing, is all we need, leading us to a twelve year depression ??

S.W. Anderson said...

A very good, thoughtful analysis, AP.

I will add that tax cuts have proven to provide anemic stimulus in recent years. There are numerous reasons, including the fact that job security has become a contradiction in terms in our economy. So in a downturn even people who still have a job realize they could be next out the door at any time. Consequently, they're far more likely to set their tax rebate or reduced-rate money aside, for when the rent's due, the refrigerator and gas tank are nearly empty, and there's only unemployment money, if that, coming in.

You don't build a big turnaround on that.

Snead said...

Uh... what's up with the comic strip?

Anthony Palmer said...


I wouldn't say the GOP is dead, but I will say that it is fractured. When moderates stop being denigrated as RINOs and hard conservatives stop denigrating people outside of their ideological tent, I think the GOP can recover. But as for now, it's both divided and polarizing. The party won't die simply because there's nothing to replace it.



Thanks for the compliment. Words like yours are what keep this blog going. Much appreciated.



I don't see why the Democrats don't turn the tax cut issue on Republicans by stressing how they won't help people who just got laid off and use that to portray the party as out of touch with working families. I'm not a professional analyst by any means, but the tax cut argument reeks of 1 + 1 = 3 logic.



Part of the problem is that Bush and Paulson were hyping up the urgency of this situation and used it to force Congress to rush through a bad bill. I think a lot of politicians have economy fatigue and bailout fatigue. Now when the sky is falling, people are a bit more reticent because of this fatigue. I don't know.



Thanks as always for the compliment. I agree with you that targeting tax cuts to people who will actually spend the money is preferable to giving everyone a tax cut, even if it sounds better PR-wise to do so. Wealthy people don't spend money. That's why they're wealthy. They save it. They invest it. Putting $5000 in a CD will do far less for the economy than putting $500 in school supplies at Target or a new PC at Best Buy. People who don't have the money will spend the money--because they have no choice. The challenge is selling this argument.



The comic strip was an experiment. I have since taken it down because it doesn't mesh well with the tone of the site. Looks like you agree. I thought a political humor strip might work, but it didn't in this case.

Thanks for reading. And thanks for all the comments.

King Politics said...

I will give the GOP credit for chutzpah. It's easier to be ideologically pure when you're in the minority. I only wish the Democrats had been so pure in 2003 during the run up to the war.

S.W. Anderson said...

AP wrote: "Wealthy people don't spend money. That's why they're wealthy. They save it. They invest it."

Excellent observation, reminiscent of the old saying, "Them that has gets."

But there's more to be said. Wealthy people grow their wealth by knowing where, and going where, there's money to be made. If they can make more money by investing in a hedge fund that's driving up oil futures prices — to the detriment of the U.S. economy and their fellow citizens — don't be surprised if they do exactly that. Same goes for investing in Chinese manufacturing stocks and India high-tech stocks.

So, plowing money back to our wealthiest citizens through yet more and more-generous tax cuts than those already lavished on them during the New Dark Age of Bush is no guarantee they will play nice and buy U.S. stocks, bonds and such. Nor is there any guarantee they'll opt for a Cadillac instead of a BMW or Lexus.

All the more reason to abandon Bush's Robinhood-in-reverse approach and let his tax cuts die a richly deserved death.

Copyright 2007-2010 by Anthony Palmer. This material may not be republished or redistributed in any manner without the expressed written permission of the author, nor may this material be cited elsewhere without proper attribution. All rights reserved. The 7-10 is syndicated by Newstex.