U.S. President Barack Obama attends Milwaukee Laborfest event in Wisconsin to celebrate Labor Day September 6, 2010.LARRY DOWNING
U.S. President Barack Obama's new stimulus proposals are finding favour with an unlikely constituency: prominent economists from George W. Bush's administration.
As the White House this week meted out details of initiatives worth $180-billion (U.S.) that will be made official Wednesday, former Republican advisers emerged among the more vocal supporters.
Greg Mankiw, a Harvard University professor who served as head of Mr. Bush's Council of Economic Advisers from 2003 to 2005, called the White House's pledge to speed up the time over which companies can write off investments in plants and equipment a "good idea" that would spark a rush of investment.
Kevin Hassett, director of economic policy studies at the Washington-based American Enterprise Institute and an adviser on Mr. Bush's 2004 presidential campaign, echoed Prof. Mankiw's praise of the depreciation tax credit. Mr. Hassett also spoke favourably of Mr. Obama's pledge to spend a further $50-billion on roads, railways and airports, as did Phillip Swagel, a professor at Georgetown University who served under Mr. Bush as the Treasury Department's top economist.
"Anyone who lands at an American airport after getting on the plane in Asia can see the merit in infrastructure spending," Prof. Swagel said.
Winning over Republican academics is a far cry from scoring votes from the stubbornly partisan opposition block in Congress that is intent on retaking control of the legislative branch in elections that are less than two months away.
Nevertheless, their support of Mr. Obama's latest economic initiatives removes a brick from the wall of opposition that Republican leaders have erected to Democratic legislation. Compromise ahead of the Nov. 2 midterm remains unlikely because Republicans still have little political incentive to compromise. But, unlike the received wisdom a week ago, Mr. Obama's willingness to adopt measures from the Republican economic policy manual means the adoption of further stimulus measures over the next few weeks can no longer be considered impossible.
"He's throwing a concession to Republicans," Mr. Hassett said in an interview. "He's telling them that their way of looking at the world has merit. It's something he should have done the first time around."
Mr. Obama will lay out his proposals Wednesday in a speech in Cleveland. Ohio, which Mr. Obama won in the presidential election two years ago, is a key political battleground that features a slew of Democratic districts that could swing to the Republicans.
But the initiatives have been in the public domain for days, thanks to strategic media leaks. Robert Gibbs, Mr. Obama's spokesman, acknowledged the proposals at a press conference Tuesday, putting the total cost at about $180-billion.
Economists said the impact of the measures would be modest. The White House proposes companies be allowed to deduct the full cost of investments in new factories, tractors and other equipment in 2010 and 2011 immediately, rather than over a period of several years. The idea is to bring forward spending that businesses might be planning for the future. That's a powerful incentive, but with idle capacity at high levels, economists at Goldman Sachs questioned whether there really was that much spending to bring forward.
Mr. Obama also will propose making a research and development tax credit permanent at a cost of $100-billion over the next decade, a slight enhancement on an existing proposal valued at $80-billion, according to Goldman Sachs.
The infrastructure program is aimed squarely at the hundreds of thousands of construction and factory workers - the Democrats' traditional constituencies - who are struggling to find work after the recession destroyed private demand for their services that may never come back. Because it takes months to get construction programs off the ground, economists doubted the plan would have an immediate impact, even if Mr. Obama and the Democrats could win enough support in Congress.
"It's not the right program to deal with employment," said Clifford Winston, an export on transportation policy at the Brookings Institution in Washington. "Conceptually, given what we know about inefficiencies, it's hard to know how this could really work as stimulus."
Other ideas
Along with research and development tax credits and changes to corporate and individual taxes, U.S. President Barack Obama has some other ideas to jump-start the U.S. economy, such as:
PAYROLL TAX HOLIDAY
A version of this already exists in a law that gives tax credits to businesses that hire workers who have been unemployed for eight weeks or longer. The Obama administration says businesses that qualified for the credits hired about 5.6 million workers, but has been unable to link hiring directly to the incentive.
A new version could give a break on payroll taxes (payments to Social Security accounts) shared by workers and employers, without the need to hire new workers and extend the time period to use the credits. Lawmakers would have to work out the accounting so the Social Security trust fund doesn't take a financial hit.
BUILD AMERICA BONDS
Taxable "Build America Bonds," created in the stimulus program last year, were designed to finance infrastructure projects. The bonds pay issuers a federal rebate of about 35 per cent of interest costs, and led to $122-billion (U.S.) in bond sales by state and local governments since their debut in April, 2009. Mr. Obama wants to make the program permanent and set the subsidy level at 28 per cent.
SMALL BUSINESS HELP
Mr. Obama continues to call for passage of a $20-billion to $30-billion bill to invest in banks with assets of less than $10-billion to spur investment in small business. Republicans call the plan a waste of taxpayers' money.
Reuters