A post mortem on the $50 billion stimulus proposal

Gretchen Hamel Executive Director, Public Notice
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As politicians continue to debate how to cure our ailing economy, the American people have already made one diagnosis: more government spending is not the antidote to our economic malaise.

According to a recent Washington Post/ABC poll, just three in ten Americans believe last year’s $862 billion “stimulus” actually helped the economy; nearly half think it made no difference; and two in ten think it made our problems worse.

Yet many in Washington are still demanding more of the same. According to the Administration, $50 billion in “emergency” federal spending is needed to cover state budget shortfalls. Undoubtedly, cash-strapped states would welcome another cash infusion.

But under mounting pressure from angry taxpayers, Congress has backed down from the massive bailout bill.

What are over-committed state governments to do now? Spending cuts will be painful, but they simply must be made. Without them, the cycle of “emergency” bailouts will continue indefinitely. Had it not been for the $122.7 billion states received from the first economic “stimulus” — most of which went to funding health programs and public teachers’ salaries – the states would already have had to make the reductions necessary to get spending on a sustainable level.

Because the “stimulus” provided a temporary fix, the necessary cuts were never made. A year later, the funds are running out, and states once again face deficits that require either cuts, or another bailout. If the latter comes to fruition, taxpayers should expect another such “emergency” just about this time next year…and the next.

In short, postponing needed changes to state budgets will ultimately exacerbate long-term budget problems. States cumulatively face projected shortfalls of as much as $180 billion for the next fiscal year, according to the Center for Budget and Policy Priorities. This does not count the brooding problem of unfunded pension liabilities, which the American Enterprise Institute estimates to be around $3 trillion.

It is also critical to put in perspective the severity of cuts most states are facing. Over the past decade, the states experienced an unprecedented explosion in spending. Since 2000, state and local government spending has increased by 60 percent (has your income more than doubled in the past ten years?). It’s reasonable to assume the necessary cuts are to rather bloated budgets.

Most states, however, insist there is simply nothing extraneous to eliminate; they need federal tax dollars to avoid making draconian cuts. Champions of the $50 billion plan claimed that, without it, states would be forced to lay off teachers and firefighters.

This is a classic example of the “Washington Monument ploy” – which takes its name from a time the Department of Interior was threatened with a funding reduction, and responded by claiming it would have no choice but to cut tour hours at – gasp! — the Washington Monument.

In short, the ploy is to amplify the perceived “pain” of proposed budget cuts by declaring the most popular things would be first on the chopping block. For example, it’s hard to believe a state government would choose to cut what it deems as critical teachers’ jobs when seemingly much lower priority endeavors, such as a lighthouse museum and a curling club (New York), continue to receive funding.

This is all beside the fact that government in the U.S. – both federal and state – has been overspending for quite some time, Americans know their government has grown too large, and too costly, to maintain. Adding $50 billion to the $13 trillion federal debt for another temporary fix – and allowing necessary cuts to get put off for another year – simply enables another cycle of unsustainable spending. It’s time for federal, state, and local governments to follow the example of American families and begin now to make the difficult, but critical, choices necessary to live within their means.

Gretchen Hamel is the executive director of Public Notice, a new independent, bipartisan, non-profit organization dedicated to providing facts and insights on the effect public policy has on Americans’ financial well being. For more information please visit www.thepublicnotice.org.