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A “To Do” List for the State and Feds

Ralph Martire 23 January 2008 No Comment

To ensure that 2008 gets off to a good start, here’s two, short-term to do lists, one for Illinois state government and the other for the feds. The to do list for the state is simple. First, the Illinois Senate has to pass the mass transit bill that just made it through the House―ASAP. That has happened. The legislation, introduced by State Representative Julie Hamos (D-18), finally creates a sustainable framework for transit funding.

Hamos’ bill contains concessions from public employee unions, and raises all the money needed to avert a transit doomsday directly from the region, ensuring folks in economically struggling downstate communities won’t subsidize mass transit in the wealthiest part of the state. The Governor, to his credit, signed the bill even though he didn’t like parts of it. His willingness to compromise to achieve a good outcome is welcome. He also decided to add an amendatory veto to the legislation, mandating that all seniors ride free. Although making transit cost accommodations for low and middle income seniors is certainly worthy, the Governor’s brush stroke was a bit overbroad.

Still, the legislation remains both good and needed, so it’s a relief the House didn’t let the perfect become the enemy of the good, and passed it with the Governor’s language. Now the General Assembly should take Hamos up on her offer to pass a follow-up bill, that would limit free or reduced cost transit access to seniors who are low or middle income, as there’s no justification for a “millionaires ride free” initiative, especially in a state that’s broke, like Illinois.

Now for the feds. In the face of a potential recession, the beltway is alive with talk of a short-term stimulus package to help avert a major downturn. To date, most of the suggestions proffered have split along partisan lines. Those on the right focus on tax relief, on the left, everything from public works programs to enhanced unemployment insurance and fiscal transfers to state governments are on the table. In both cases, policy makers get things part right and part wrong. So the to do list for the feds is also simple―get it all right.

Start with tax breaks. Tax relief can have a short-term stimulative effect on the economy, provided it’s properly structured. This requires that the tax relief satisfy two, simple principles. First, to create a short-term stimulus, the relief itself has to be short-term and relatively immediate. That may seem like common sense, but in Washington, common sense isn’t so common. So President Bush’s repeated insistence that any short-term stimulus include making permanent the tax cuts he passed previously, but are set to expire in 2010, should be dismissed out of hand. Think about it. The reduced tax rates are already law―have been for years. They won’t expire for another two years―meaning the impact of making them permanent, if any, won’t occur for two years, which is neither immediate nor short-term. Making these tax cuts permanent cannot have any stimulative effect in 2008.

Immediate tax relief for low and middle income families, however, would. See, to get a stimulus from a tax break, the relief has to be spent. Low and middle income folks have seen their inflation adjusted earnings decline over the past few years. To intentionally belabor the obvious, these folks won’t save their tax relief ―because they can’t. Instead they’ll spend virtually all that tax relief in local economies across the country, delivering the desired stimulative effect.

Similarly, enhanced unemployment benefits can be stimulative―if the enhanced benefits reach unemployed workers quickly. That would require eliminating a lot of the red tape that usually bogs down reforms in this area. Extra federal transfers to state governments would also create a stimulus, for one simple reason: unlike the federal government, 49 of the 50 states have balanced budget requirements. So without a quick source of new revenue, spending on needed programs like Medicaid and education would be curtailed, worsening any recession. Big public works programs, however, would in all likelihood have no short-term impact, and hence not much stimulative value. There’s many reasons for this, key among them the delay in start time. Big infrastructure projects take a while to get going―thus failing to satisfy the requirement of immediacy. Like other long-term concerns, infrastructure build-outs should be based on meeting long-term needs. In the short-term, let’s just hope decision makers get things right.

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Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank. rmartire@ctbaonline.org

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