President Barack Obama is proposing hundreds of billions of dollars in additional tax cuts and other incentives.
The proposal will include measures to promote infrastructure improvements, building construction, a payroll tax cut for employers, aid for state and local governments, new-hire tax credits and job training initiatives.
This would be the third major fiscal stimulus measure during the Obama administration. In February 2009, lawmakers passed the $787 billion American Reinvestment and Recovery Act, known as ARRA, to cut taxes and expand a host of tax credits, slow the unemployment rate, provide relief to the states, send direct cash payments to Social Security recipients, veterans and low income workers, and to invest in some infrastructure, education, health and environmental programs.
Then, in December 2010, the bipartisan $858 billion Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act extended the Bush tax cuts of 2001 and 2003 until 2012, extended certain provisions of the 2009 ARRA, and extended unemployment benefits and a reduction in the FICA payroll tax for one year.
The problem is this recession, like those in the past, are global in scope. However, our political leaders respond to such downturns and contractions as if they are purely domestic phenomena. Why do they do this? First, we live in a democracy in which our leaders are in the pockets of interest groups and political action committee funding election and re-election campaigns and held accountable by fickle citizens who expect quick action and immediate results.
Second, America co-exists in and is co-dependent on a global economy, which means it is sensitive and vulnerable to international fluctuations, such as debt crises in the Europe Union, massive earthquakes in Japan and political instability in the oil-rich Middle East. The global recession of 2008 was initiated in the U.S. housing market and on Wall Street and now American recovery is constrained by subsequent global instability.
When the U.S. sneezes, the world catches a lingering virus that causes long-term fatigue everywhere.
Current economic progress seems to be slowing because additional government spending is coming to an end. The recent focus on debt reduction could actually constrain job creation and therefore keep the economy from expanding. The government is the only stimulative tool left and the market is incapable of producing recovery on its own. We are simply not at the right point for the federal government to begin paying down its debts and annual deficits.
Should we leave open the possibility of additional rounds of monetary and fiscal stimulus? Will deficit and debt reduction actually produce a double dip recession?
Chris Dolan is an assistant professor of political science at Lebanon Valley College and the author of “Striking First,” “In War We Trust,” and “The Presidency and Economic Policy.”