The fate of the Obama stimulus plan is pre-determined: There will be a plan, costing between $750 million-$1 trillion in tax cuts and spending increases, and it will be enacted with bipartisan support around mid-February. The content of the plan is another thing: Over this past weekend, President-elect Barack Obama invited congressional amendments to his original plan, released last week, and appeared quite flexible (perhaps too flexible) about the fine print.
I was surprised by the lack of Democratic congressional support expressed for the original plan on its release last week. I would have expected House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, and key Senate Finance and House Ways and Means Committee leaders to have been involved in development of the plan, to have been pre-briefed on the final draft's contents, and then to have made strong endorsements of the plan within minutes of Obama's unveiling of it. This did not happen. A number of Democrats have questioned, in particular, some of the tax-cut components of the plan.
Obama won a decisive 2008 electoral victory which added to Democratic majorities in both House and Senate. His approval ratings are far higher than those of the Congress. It was time for his party's congressional leaders to rally to his centerpiece proposal. Why didn't they?
First, all Democrats and Republicans are fearful of the huge price tag attached to the package which, added to the present projected federal budget deficit, will plunge us into deep red ink over the next several years. Second, they have not yet shifted gears from Executive-Congressional relationships during the eight Bush years, when Hill Democrats were wary of or outrightly hostile to White House proposals. Finally, the incoming Obama team did not sufficiently engage congressional Democrats during the formulation of the proposal but, instead, briefed them only at the last minute.
That last aspect signals to me that Obama and his team have not yet shifted their mindset from campaigning to governance. A campaign can issue a 10-point program without anything but internal consultations. A president does so at his peril — as President Clinton did after formulating his and Hillary's health-care reform plan in 1994 — if he does not involve the Congress and key interest groups in consultations beforehand.
The details of the original proposal, released only last weekend, are too complex to be understood by most in the Congress and in the electorate. They are carefully targeted both to near-term stimulus as well as to policy areas Obama wants to stress. Each of the many pieces in the proposal will present, of and by itself, a political target for one critical group or another.
To oversimplify, a more easily understood proposal would have consisted of a) a 60-day business or consumer tax holiday or short-term cuts in both personal and business taxes, across the board; and b) a program of investment in public infastructure broken into one or two categories. Instead, the proposal has many sub-divisions, involves a number of challengeable economic assumptions, and stimulates a reaction that money could be saved by just sawing off separate parts of it.
I am reminded by the proposal of a 1968 exchange among presidential candidates debating the issue of Vietnam. New York Gov. Nelson Rockefeller, seeking the Republican presidential nomination, issued a five-point plan for peace in Vietnam. Both Vice President Hubert Humphrey and Sen. Robert Kennedy, on the Democratic side, issued written critiques which amounted to five-to-ten-point plans of their own (I wrote Humphrey's). Sen. Eugene McCarthy, interviewed coming off his campaign plane, was asked about the Rockefeller, RFK, and HHH plans. His answer was a classic and, politically, the astute one. "When it comes to plans," he said, "when you get beyond three points, you cut it too thin."
The lack of political preparation, and the plan's present complexity, will be overcome, mainly because all the players have a stake in getting something done on both taxes and spending and across party lines. The economic situation requires it. But a political climate has been created in which criticisms and changes have been made more certain.
Council of Economic Advisors Chair-designee Christina Romer and Jarden Bernstein of Vice President-elect Joe Biden's staff presented the details of the plan last Saturday, asserting that "tax cuts, especially temporary ones, and fiscal relief to the states are likely to create fewer jobs than direct increases in government purchases." They quickly added, however, that tax cuts and state relief could be implemented far more quickly and thus constituted major components of the plan.
They predicted that construction and manufacturing would get strong job growth from the components involving infrastructure, energy, and school-repair spending. They emphasized that 90 percent of jobs would be created in the private sector whereas state and local government jobs were likely to be "saved" by state tax relief. They warned, however, that estimates provided in their background paper "are subject to significant margins of error" and from "modeling a hypothetical package rather than the final legislation passed by the Congress."
Perhaps most disturbing to congress members seeking a quick economic jump start, the plan projects that jobs to be created by Obama-proposed infrastructure, education, health, and energy spending would not be created until 2010 and 2011 — not this year. Tax incentives and programs to help the vulnerable would, however, be felt in 2009.
The plan's breakdown of job creation, industry by industry, by the end of 2010 showed construction to be the major beneficiary, with nearly 700,000 jobs, followed by retail trade, with 600,000; leisure and hospitality, with 500,000; and manufacturing, with 400,000. Job creation in utilities, by contrast, would total only 11,000. Job creation, altogether, would total 3,675,000.
The tax and spending components of the plan will, as noted, be changed greatly over the next month. Congress will pressure, in particular, for implementation of programs making a difference in this calendar year. Obama's expressed intent to exclude "earmarks and pet projects" from the program will be tested almost immediately. Seattle Mayor Greg Nickels, for instance, has made his expensive Mercer Project — tied to Vulcan Inc.'s South Lake Union real estate development — the project highest on his wish list, as submitted to the Obama transition team.
We'll keep you posted as things evolve. In meantime, please watch and hear Congressional leaders of both parties as they discuss the package. When statements of approval begin to outweigh statements of skepticism, a corner will have been turned.
