The Wonk Room has been following the developing saga regarding tax cuts that President-elect Barack Obama is looking to include in an economic recovery plan. Today, the Senate Finance committee held a closed door meeting to discuss the plan, and some Democratic Senators emerged skeptical of the cuts, saying they “wouldn’t do much to stimulate the economy or create jobs.”

Lawmakers were reportedly “especially critical of a proposed $3,000 tax credit for companies that hire or retrain workers”:

- Sen. Kent Conrad (D-ND): If I’m a business person, it’s unlikely if you give me a several-thousand-dollar credit that I’m going to hire people if I can’t sell the products they’re producing…That to me is just misdirected.

- Sen. John Kerry (D-MA): I’m not that excited about it…The creation of a tax credit for hiring isn’t going to make up for the lack of goods being sold.

Also criticized was a plan to distribute tax cuts incrementally through workers’ paychecks:

- Sen. Ron Wyden (D-OR): In tough times, people don’t respond that well to marginal changes, such as a small amount of money added per paycheck.

Kerry said he’d “rather spend the money on the infrastructure, on direct investment, on energy conversion, on other kinds of things that much more directly, much more rapidly and much more certainly create a real job.”

Indeed, significantly more stimulus “bang for the buck” comes from direct investment in infrastructure than from any type of tax cut. One dollar invested in infrastructure has a return of $1.59 in GDP growth; the most effective tax cut, a payroll tax holiday, only returns $1.29, while most tax cuts don’t even return 50 cents.

However, in order for the stimulus to be large enough to make a difference, it is going to have to include some tax cuts, as there is only so much infrastructure spending that can be implemented quickly. But as Matthew Yglesias wrote, to be an effective stimulus the cuts need to “put money in the hands of individuals with a high propensity to spend.” This means lower- and middle-income families, not corporations or millionaires. To his credit, Obama has proposed some cuts of this kind.

The tax rebate passed last year by Congress was ineffective because it was poorly targeted. Economists have calculated that taxpayers spent just 12 percent of the rebate and put the rest of it into savings accounts or toward old debts. The current economic crisis is too dire for another misfired effort.

Today, President-elect Barack Obama delivered a major address at George Mason University to introduce his American Recovery and Reinvestment Plan, an economic stimulus package that could amount to $775 billion in federal spending and tax cuts. During the speech, Obama emphasized that part of the plan will be an investment in updating and modernizing American schools:

To give our children the chance to live out their dreams in a word that’s never been more competitive, we will equip tens of thousands of schools, community colleges and public universities with 21st century classrooms, labs and libraries. We’ll provide new computers, new technology and new training for teachers so that students in Chicago and Boston can compete with children in Beijing for the high-tech, high-wage jobs of the future.

Watch it:

This would be a wise use of stimulus dollars, as America is not only in the midst of an economic crisis, but is headed toward a human capital crisis. The College Board notes that there has been an “alarming decline of U.S. educational attainment among 25- to 34-year-olds,” and that “a torrent of American talent and human potential entering the educational pipeline is reduced to a trickle 16 years later as it moves through the K-16 system.” The stimulus package can help to reverse this decline, while at the same time providing an immediate boost to the economy by creating jobs and supporting material providers.

Currently, “close to a third of schools have one or more temporary buildings, housing an average of 160 students each”; more than half the schools in California, Florida, Hawaii, Louisiana, New Mexico, North Carolina, Texas, Utah, and Washington have temporary buildings. The Center for American Progress has found that, with about a $20 billion investment in school modernization and repair, the federal government can generate “250,000 skilled maintenance and repair jobs and supply $6 billion of materials and supplies,” while correcting these abysmal numbers.

As Jim Goodnight and Keith Krueger wrote in Business Week, a “carefully constructed” education investment “can meet the short-term stimulus requirements,” while the “greatest impact is that our children would receive an education that reflects the wider world, and would emerge from schooling ‘future ready.‘” Indeed, there is no reason for stimulus dollars to be wasted on roads to nowhere or corporate handouts, when a strong investment can be made in America’s present and future.