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December 10, 2010

Krauthammner: Did Republicans Agree To Stealth Stimulus II?

It is one way to look at it. I'm not sure how much I agree with him yet. He seems to start from the premise that tax cuts need to be "paid for," which is a contentious proposition on the right. But if we're looking at the deficit -- which I assume most are -- of course they have an effect on that.

Krauthammer wonders if the $990 billion in new (Chinese) money pumped into the economy through tax cuts (and... also more spending in various forms) is Barack Obama's re-election plan.

Barack Obama won the great tax-cut showdown of 2010 - and House Democrats don't have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years - which just happen to be the two years of the run-up to the next presidential election. This is a defeat?

If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990 billion over two years. Two-thirds of that is above and beyond extension of the Bush tax cuts but includes such urgent national necessities as windmill subsidies.

No mean achievement. After all, these are the same Republicans who spent 2010 running on limited government and reducing debt. And this budget busting occurs less than a week after the president's deficit commission had supposedly signaled a new national consensus of austerity and frugality.

Some Republicans are crowing that Stimulus II is the Republican way - mostly tax cuts - rather than the Democrats' spending orgy of Stimulus I. That's consolation? This just means that Republicans are two years too late. Stimulus II will still blow another near-$1 trillion hole in the budget.

At great cost that will have to be paid after this newest free lunch, the package will add as much as 1 percent to GDP and lower the unemployment rate by about 1.5 percentage points. That could easily be the difference between victory and defeat in 2012.

Obama is no fool. While getting Republicans to boost his own reelection chances, he gets them to make a mockery of their newfound, second-chance, post-Bush, Tea-Party, this-time-we're-serious persona of debt-averse fiscal responsibility.

It's an interesting take, but there are a couple of points to make against it:

First of all, Krauthammer proceeds from the assumption that reducing the deficit is the highest priority among conservatives and Republicans. It isn't and never has been -- the highest priority is keeping taxes low, or as low as possible given the political situation. The deficit is and always will be the number two priority, and sometimes it will be number two by a wide margin. I hope that number two is now very close to the top, just behind number one.

But this has always been the case. It has always been conservative/Republican doctrine that lower taxes yield any number of desirable economic effects, such as increased economic activity which in turn leads to greater revenues which partly offset the costs of the tax relief.

The other part of his argument is a bit odd. He notes that the tax cuts will lead to a 1% gain in GDP and a lowering of the unemployment rate by 1.5% -- and this is a bad thing? Yes, it will help Obama, certainly, but we always knew that. Republicans taking over Congress and forcing him, against his radical will and socialist conscience, to take measures to improve the economy rather than undermining it would perversely wind up helping him politically.

But what was the alternative? Deliberately lose Congress in 2010 again so that Obama and the Democrats could pursue their economy-destroying plans? Sure, we'd be in a better position in 2012 if the economy went into a second dip; but are we really prepared to say "the more misery for the American people, the better for us"?

Krauthammer probably doesn't mean that (ironically, that has the ring of "I want him to fail," a line of Limbaugh's I'm sure he railed against), but that is an implication of his column. The American public voted Republicans into Congress largely to rescue the economy -- and rescuing the economy inevitably helps rescue Barack Obama.

That's a politically unappealing proposition, but there is in the end no way to do right by America without coincidentally aiding Obama too.

And as for the deficit-- Republicans have claimed over and over it would be reduced through reduced spending, not through keeping tax rates high. They have not sold out that principle out yet, although early evidence suggests that may just be a matter of time:

After agreeing to kill earmarks, some of the most conservative GOP lawmakers are already starting to ask themselves: What have we done?

Indeed, many Republicans are now worried that the bridges in their districts won’t be fixed, the tariff relief to the local chemical company isn’t coming and the water systems might not be built without a little direction from Congress.

So some Republicans are discussing exemptions to the earmark ban, allowing transportation, U.S. Army Corps of Engineers and water projects. While transportation earmarks are probably the most notorious — think “Bridge to Nowhere” — there is talk about tweaking the very definition of “earmark.”

“It’s like what beauty is,” said Rep. Phil Roe (R-Tenn.). “Everyone knows what a bridge to nowhere is, or an airport that lands no airplanes, or a statue to you — everyone knows that’s bad. It’s easy to say what an earmark isn’t, rather than what an earmark is.”

The issue has popped up most frequently at the Conservative Opportunity Society, the caucus founded by former House Speaker Newt Gingrich (R-Ga.) in the early 1980s. During their Wednesday morning meeting last week, caucus members had a long discussion about how the Republican Party could redefine “member-directed spending,” as earmarks are formally called on the Hill.

Conservatives like Roe, Minnesota Rep. Michele Bachmann and Iowa Rep. Steve King are among those trying to figure out a longer-term, sustainable way to get money back to projects in their districts.

That is the greater problem here. Not that Republicans have done what they promised to do (extend the Bush tax cuts), but they are already working on ways to not do what they also promised to do (cut spending, including, firstly, earmarks).


Thanks to TomM. for the Krauthammer tip and Slublog for the earmarks one.

Pethokoukis Down On Deal: James Pethokoukis is also down on the deal, for giving away too much to Obama, such as the cut in employee payroll taxes, when a cut in employer payroll taxes would have created far more jobs.

It's a matter of priority -- do we want those with jobs to have a little more money, or do we want those without jobs to have them? I think the latter wins in a walk.


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posted by Ace at 12:39 PM

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