December 10, 2001

Senate Finance Committee Plan Includes Sound Stimulus Proposals

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On November 26, the Center on Budget and Policy Priorities released an analysis of the economic stimulus plan developed by Senate Finance Committee Chairman Max Baucus and recently adopted by that committee; the provisions of this plan will be among those discussed in the stimulus negotiations now beginning among Congressional leaders and the Administration. The Senate Finance Committee plan includes a number of sound stimulus proposals that are not part of either the House-passed or Administration measures. Almost all of the plan's provisions would expire by the end of 2002, so the plan would not worsen the federal government's long-term fiscal problems. Furthermore, its provisions generally are well-targeted on low- and moderate-income individuals and the unemployed — the people most likely to spend quickly any additional dollars they receive — and on businesses that make new investments.

Some have criticized the Senate Finance Committee bill for including extraneous provisions such as agricultural assistance payments, tax incentives for New York City, and other targeted tax breaks. A number of these provisions do not belong in a stimulus package. These provisions, however, represent less than 10 percent of the bill's cost in 2002. The bill's core provisions, which account for the vast majority of its cost, represent effective stimulus. The extraneous Finance Committee provisions are modest in comparison to provisions in the House-passed and Administration plans that would cost tens of billions of dollars and shower long-sought-after tax breaks on profitable corporations and upper-income taxpayers, while doing little to stimulate the economy.

Regarding the specific elements of the Senate Finance Committee bill:

In addition, the bill would address two widely recognized problems in the unemployment insurance system that cause many workers unavailable for full-time work, as well as workers who entered the job market fairly recently, to be denied benefits. These problems in the current system are particularly injurious to low-income workers who are laid off. The Finance Committee bill would provide benefits to unemployed workers who meet all other criteria for benefits but are currently disqualified solely because they are available for work on less than a full-time basis. It also would allow workers to count their earnings in the most recently completed calendar quarter when their eligibility for unemployment benefits is determined.

Neither the House nor Administration packages include funds for state fiscal relief. According to a number of leading experts on the economy — including this year's co-winner of the Nobel Prize in economics, Joseph Stiglitz — fiscal relief to states and the provision of additional benefits to the unemployed are two of the most effective stimulus measures Congress can adopt.

The Finance Committee's business tax cuts are more responsible than the business tax provisions of the House and Administration packages. The Finance Committee provisions are focused on encouraging new investment. The Finance Committee package does not confer large corporate tax cuts that are unrelated to new business investment and hence would have little stimulative effect, such as repeal of the corporate AMT.

In addition, all of the Finance's Committee principal tax cuts (as well as its principal spending provisions) would expire at the end of 2002. These provisions consequently would provide stimulus during the recession without worsening the federal government's long-term fiscal problems. By contrast, all of the major business tax cuts in the House and Administration packages are multi-year or permanent.