Stimulus Costs And The GOP

This will be very quick: all the hand wringing going on within the Republican party concerning the cost of the stimulus plan is, frankly, absurd. The sudden conversion to fiscal conservatism is political grandstanding of the first order. All any half way competent commentator has to do is to look at the impact of the stimulus plan on our future Federal deficits to see that, in fact, it is quite modest in the context of the problem being solved. Even more absurd is the notion proposed by some GOP governors that they won’t accept all the money due to them, but will cherry pick and accept only that portion they approve of, but that’s another story.

Here, let’s take a look at the budget impact to stress test [stress testing is in vogue] the GOP claims that the stimulus package is unaffordable.

The best place to start is the Congressional Budget Office, which is the non-partisan center for analysis of budgetary matters that Congress appeals to for impact studies. Here’s what they sent Nancy Pelosi today: CBO Response to Pelosi Budget Alternatives. To put this in context Pelosi has asked for some analysis to show the impact of three sets of alternative budget actions each including various combinations of tax cuts etc. Don’t forget it’s budget time down in DC.

This analysis is an attempt to put some framework around the Federal Budget over the next few years, but it includes figures for the stimulus as well as continuing the Bush tax cuts. The comparison provides us with our insight into the honesty of the GOP fiscal position. Take what they call the ‘First Policy Scenario Alternative’. The ‘baseline’ deficit for 2009 is projected to be $1.186 trillion which includes the cost of the various bailouts but not the stimulus, which according to the CBO, will add $185 billion to the deficit this year. In 2010 the stimulus costs rises sharply to $399 billion, but the baseline deficit drops to $703 billion. The numbers are all there in Table 1.

What stands out in glaring technicolor is the fiscal impact of the Bush tax cuts. Something that the Republicans stood solidly behind. We can find that impact from this analysis because the CBO is mandated to use current policy in its forecasts. So its baseline includes the impact of the 2001 and 2003 tax cuts. That impact was a huge loss of revenue for the years 2001 through 2010. Recall, though, that in order to make the tax cut impact look less damaging long term the Bush administration limited the life of the cuts. Congress has to renew them in 2010. Otherwise they drop out and revenues rise sharply. The CBO’s baseline forecast takes into account this revenue increase because it is the result of current policy. Most private forecasts have the tax cuts being renewed in some form so they have much larger deficits going out beyond 2010. But the CBO is forced to hew to policy and thus has a sharply declining deficit as the tax cuts are allowed to lapse.

Pelosi has rather sneakily asked the CBO to show the impact of keeping those tax cuts alive. If her purpose is to demonstrate the GOP’s hypocrisy then she succeeds in spades.

The analysis shows that re-upping the Bush tax cuts would add a cumulative $4.38 trillion to the Federal deficit over the next ten years. The apparently unaffordable stimulus package only adds $602 billion.

There you have it. In plain sight. The GOP supported and advocated tax cuts will cost us seven times the amount that the stimulus package will over the same period.

So a quick question to all those newly fiscally conservative GOP’ers out there: which program can we least afford? The $4.38 trillion tax cut extension or the $602 billion stimulus?

If money is tight it looks like that stimulus package is a real steal.