In July, economists Mark Zandi and Alan Blinder released a study showing that the American Recovery and Reinvestment Act (the stimulus package) raised Gross Domestic Product by about 2 percentage points and kept the unemployment rate one and half points lower than it would have been otherwise. In concert with the Troubled Asset Relief Program, government interventions to prevent a complete economic meltdown were “huge,” keeping the unemployment rate about 6.5 points lower.
Wisconsin’s Senate Republican nominee Ron Johnson, though, is having none of it, saying the stimulus “has not created jobs, has not created sustainable growth and has put us $2 trillion further in debt.” Instead, as the Milwaukee Journal-Sentinel reported, Johnson preferred the government boost the economy by extending the Bush tax cuts:
“I don’t believe government is the solution. I want to move in the direction of limited government. I don’t want to start throwing $1 trillion at the problem. That means inflation and taxes will increase.” If the government had instead cut taxes, in particular the Bush tax cuts set to expire at the end of the year, and controlled spending, Johnson said, “the economy would have taken off.”
For starters, Johnson is acting as if the Recovery Act did not include tax cuts, when one-third of the package was just that. In fact, Johnson’s desire to stop stimulus funding in its tracks — in addition to stopping construction projects around the country cold — would raise taxes on the middle class by reversing Obama’s Making Work Pay tax credit.
According to the Congressional Budget Office, meanwhile, extending the Bush tax cuts is the least stimulative tax or spending step available for boosting the economy, producing just 10 to 40 cents in economic activity for every dollar spent. Extending the Bush tax cuts permanently will actually depress incomes in the long-term, because of the debt-load they entail.
Of course, Johnson’s distaste for the stimulus didn’t extend to his own business dealings, as he sought funds for an opera house while sitting on its board as treasurer. And, in the end, we’ve already tried his preferred approach for boosting economic growth; what we got was the weakest job and income growth of the post-war period.