One of the local newspapers asked me last week what my priorities would be for a stimulus package. Here's what I suggested:
These are not necessarily in order of importance, although 1, 2, and 3 are the things I would place at the head of the list.
1. Increased spending on infrastructure projects. There’s generally a number of these that are pretty much ready to roll. In northwest Indiana, these could include speeding up highway repair and maintenance projects, work on the existing South Shore lines, and extending the South Shore to serve more of the region.
2. Increased federal assistance to state and local governments. Unlike the federal government, state and local governments mostly have to present balanced budgets. In recessions, this can mean cutting state and local government spending, and laying workers off, at the worst possible time. A temporary Increase in federal support for state and local government can help avert this.
3. A temporary extension of unemployment insurance benefits for laid-off workers. Expanded unemployment insurance benefits to help laid-off workers pay for health care insurance under the current COBRA provisions.
4. A serious effort to mitigate foreclosures on residential mortgages. Returning to the “old” bankruptcy standards that allow bankruptcy judges to adjust mortgage debt. (This used to be legal, but was made illegal in the bankruptcy “reforms” enacted a few year back. Oddly, the new law disallows such adjustments for a primary residence, but does allow them for vacation or secondary residences.)
5. A temporary reduction in payroll tax rates, especially unemployment insurance and worker’s compensation tax rates, with the foregone revenue made up from the general revenues of the federal government. Both these programs are federal mandates, but the revenues come from state tax levies. Reducing those levies now will provide some tax relief to businesses, but the revenues will have to be made up to allow the programs to continue to operate.
6. A temporary increase in federally-funded student financial aid for higher education. Many people have lost jobs, and many more are likely to do so in the coming months. Temporarily increasing student aid, including, perhaps, stipends for living expenses (as were provided, for example, under the GI Bill after World War II), would make it easier for people who have lost their jobs to enhance their skills, develop new skills, and prepare for the changes the economy is certain to go through in the future.
You will doubtless note the absence of cuts in federal personal income taxes or federal business income taxes or federal capital gains taxes. I don’t think those are likely to be especially effective in combating the recession. You will also note that I specify that much of this be temporary. We’re trying to solve a temporary problem, so the remedies should be temporary.