As Democrat and Republican lawmakers struggle to agree on a long-term economic solution—and the fiscal cliff draws nearer—the Obama administration is paying renewed attention to stimulating the again-sluggish economy. In his debt proposal presented last week to Congressional leaders, President Obama included about $50 billion in stimulus measures. House Republicans, however, stand firmly against further widening of the federal deficit with any stimulus money.
The proposed stimulus measures relate back to Obama’s failed American Jobs Act proposal, and include a continuation of emergency federal unemployment insurance, an extension of the payroll tax cut, a mortgage-refinancing proposal and billions of dollars in infrastructure investment.
“We have a very good plan, a very good mix of tax reforms,” Treasure secretary Timothy Geithner told ABC. “We can create some room to invest in things that make America stronger, like rebuilding America’s infrastructure.”
House Speaker John Boehner (R-Ohio), however, made no mention of stimulus measures in his counteroffer presented Dec. 3. According to Republican aides who spoke on condition of anonymity, stimulus funds are not a priority for Republicans given the nation’s fiscal state, and the party may be holding back on supporting stimulus measures in order to increase its bargaining position on other matters, such as taxes.
Under the GOP proposal, the deficit would shrink by $2.2 trillion in the next 10 years based upon $800 billion in tax reform, $600 billion in Medicare reform and other health savings, and another $600 billion in miscellaneous spending cuts. The White House, however, says the Republican plan would increase the tax burden on the middle class while lowering tax rates for the wealthy—something Obama refuses to agree to under any circumstance.
“(The president) will not sign a bill that extends those tax rates for the top 2 percent” White House spokesman Jay Carney told reporters. “We can’t afford it. It is not a wise economic policy. It’s not wise fiscal policy and it would defeat the principle of balance that he has embraces so clearly throughout these negotiations.”
Obama may be correct in his focus on boosting the economy. Various data indicates economic recovery is slowing. For example, Macroeconomic Advisors recently estimated the economy is now expanding at a mere 0.8 percent annual pace, down from 2.8 percent in the third quarter. The slowdown can be attributed in part to Hurricane Sandy, which hit the large economic centers of New York and New Jersey, hurting wages and available work in the regions.
The looming fiscal cliff itself may also be hindering economic growth as consumers and businesses alike hold back spending for fear of tax increases and spending cuts that will take place Jan. 1 if Congress fails to agree on a plan. The Institute for Supply Management reported Dec. 3 that the manufacturing industry declined in November as its index of purchasing activity hit its lowest point since mid-2009. According to the report, manufacturers expressed “concern over how and when the fiscal cliff issue will be resolved.”
“It’s a pretty dramatic slowdown,” Macroeconomic Advisers chairman Joel Prakken told the New York Times. “There’s weak demand, which just does not portend well for the coming quarters.”
