Even more myths and falsehoods surrounding the economic recovery plan
1. The bill will not stimulate the economy
In a February 1 article, The Associated Press reported an assertion by Senate Minority Leader Mitch McConnell (R-KY) that the recovery bill will not stimulate the economy without noting that the CBO disagrees. ABC World News anchor Charles Gibson echoed this assertion during his February 3 interview with President Obama, stating: "And as you know, there's a lot of people in the public, a lot of members of Congress who think this is pork-stuffed and that it really doesn't stimulate." Additionally, on the January 28 edition of his show, nationally syndicated radio host Rush Limbaugh allowed Rep. Eric Cantor (R-VA) to falsely claim of the bill: "Even the Congressional Budget Office, controlled by the Democrats now, says it is not a stimulative bill." Fox News host Sean Hannity repeated this claim on the February 2 broadcast of Fox News' Hannity, asserting that the CBO "say[s] it's not a stimulus bill."
In fact, in analyzing the House version of the bill, H.R. 1, and the proposed Senate version, the CBO stated that it expects both measures to "have a noticeable impact on economic growth and employment in the next few years." Additionally, in his January 27 written testimony before the House Budget Committee, CBO director Douglas Elmendorf said that H.R. 1 would "provide massive fiscal stimulus that includes a combination of government spending increases and revenue reductions." Elmendorf further stated: "In CBO's judgment, H.R. 1 would provide a substantial boost to economic activity over the next several years relative to what would occur without any legislation."
2. Government spending in the bill is not stimulus
Several media figures, including CNN correspondent Carol Costello, CBS Evening News correspondent Sharyl Attkisson, and ABC World News anchor Charles Gibson, have all uncritically reported or aired the Republican claim that, in Gibson's words, "it's a spending bill and not a stimulus," without noting that economists have said that government spending is stimulus. Indeed, in his January 27 testimony, Elmendorf explicitly refuted the suggestion that some of the spending provisions in the bill would not have a stimulative effect, stating: "[I]n our estimation -- and I think the estimation of most economists -- all of the increase in government spending and all of the reduction in tax revenue provides some stimulative effect. People are put to work, receive income, spend that on something else. That puts somebody else to work." Additionally, Dean Baker, co-director of the Center for Economic and Policy Research, has said, "[S]pending is stimulus. Any spending will generate jobs. It is that simple."
3. There is no reason for stimulus after a turnaround begins
In a January 28 Wall Street Journal article, reporter Naftali Bendavid uncritically reported congressional Republicans' criticism of the proposed economic stimulus bill on the grounds "that much of the money in the package wouldn't be spent until 2011 or later, when a recovery is likely to be already under way." CNBC anchor Melissa Francis and MSNBC anchor Contessa Brewer repeated this criticism on the January 29 edition of MSNBC Live when Francis stated: "Only 64 percent of the money is going to be spent within the next 19 months," and Brewer replied, "And how do you justify that?" Francis responded: "How do you justify that is the real question." Limbaugh also suggested that stimulus would not be necessary after a turnaround begins in a January 29 Wall Street Journal op-ed in which he asserted that "[t]he average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they're left alone. What can make the recession worse is the wrong kind of government intervention." None mentioned the position of many economists that a stimulus package will be necessary even if the economy begins to turn around.
In his January 27 testimony, Elmendorf said that fiscal stimulus in 2011 or later would be effective in the current economic situation, in which economic output is projected to remain below its potential even after the beginning of the recovery. Elmendorf stated that unlike in ordinary "periods of economic weakness" that "are fairly short-lived," "CBO projects that economic output will remain significantly below its potential for several more years, so policies that provide stimulus for an extended period of time may be appropriate." From Elmendorf's testimony:
Timing. The economic effects of fiscal stimulus should occur during the period of economic weakness, all else being equal. When, as now, a recession is clearly already under way and aggregate demand is declining, it is better if stimulus affects spending quickly in order to mitigate further deterioration in the economy. Different types of policies may differ greatly in how quickly they can be implemented.
Because most periods of economic weakness are fairly short-lived, it is generally preferable that stimulus policies be short-lived. Currently, however, CBO projects that economic output will remain significantly below its potential for several more years, so policies that provide stimulus for an extended period of time may be appropriate. Indeed, a fiscal stimulus that ends before the economy has started to regain its footing runs the risk of exacerbating economic weakness when the stimulus ends.
Likewise, in a January 27 blog post, New York Times columnist and Nobel laureate Paul Krugman wrote:
It's not a problem if some or even most of the stimulus arrives after the official recession, as determined by the NBER, is over. Why? Because in modern recessions, unemployment keeps rising long after the NBER has determined, based on things like industrial production, that the recession proper is over. [emphasis in original]
4. Corporate tax rate cuts and capital gains tax rate cuts would provide substantial stimulus
In his January 29 Wall Street Journal op-ed criticizing the economic recovery plan and offering his own suggestions to stimulate the economy, Limbaugh advocated "cut[ting] the U.S. corporate tax rate ... in half" and "[s]uspend[ing] the capital gains tax for a year to incentivize new investment, after which it would be reimposed at 10%." During the January 29 edition of MSNBC Live, CNBC host Erin Burnett said that there were "interesting ideas" in Limbaugh's op-ed and his advocacy of "cutting the corporate tax" and "slashing capital gains" taxes were "serious things to say." However, many economists do not view corporate tax rate cuts and capital gains tax rate cuts as particularly "serious" or effective methods for stimulating the economy.
According to a January 2008 CBO report, "Options for Responding to Short-Term Economic Weakness," "a reduction in the corporate tax rate" is "not a particularly cost-effective method of stimulating business spending" because "[i]ncreasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more, because production depends on the ability to sell output." Indeed, Mark Zandi, chief economist and co-founder of Moody's Economy.com who was reportedly a McCain campaign economic adviser, included in 2008 written congressional testimony a table stating that every dollar spent through a "Cut in [the] Corporate Tax Rate" produces a GDP increase of only $0.30 -- the third least-efficient provision of the 13 he studied.
