Rushing to craft major legislation typically is a recipe for failure. One year ago, Congress passed the American Recovery and Reinvestment Act (ARRA) with its $787 billion price tag. President Barack Obama and Democrats in Congress assured the impressionable populace that the stimulus bill would create 3.5 million new jobs, cap unemployment at 8 percent, and build a green economy that would be stronger than any economic cycle our nation had ever experienced. To date, little evidence exists that the stimulus has been effective.
The most disappointing aspect about the legislation is that it has left our states in a fiscal quandary of historic proportions. The stimulus provided $200 billion to the states so legislatures could maintain and expand programs the Democratic leadership deemed important and avoid the need to make government smaller and more efficient.
Many governors, such as Haley Barbour of Mississippi, Rick Perry of Texas and Mitch Daniels of Indiana, voiced their strong opposition to the spending measure. The governors presciently advocated the rejection of much of the monies allocated to their states based on the belief that the strings attached to the stimulus money would saddle states with more debt and obligations they could not meet in the future.
Democrats said the stimulus would significantly slow job loss and ultimately raise new revenue to offset new spending requirements. Democrats even went so far as to accuse the governors of posturing and promoting conservative ideology before the needs of their respective states.
Now, one year later, states which accepted stimulus money find themselves with massive budget deficits due to the federal government’s mandate that states continue to fund programs and entitlements at the same level funded under the stimulus. As the country continues to shed jobs and subsequent revenues decline on less-than-robust consumer and commercial spending, states are begging for relief. Pointedly, the stimulus has proven to be an economic and political nightmare. Perhaps Democrats should have listened to the Republican governors instead of chastising them.
One primary problem with the stimulus bill is that it included federal mandates that prohibit state legislatures from reducing spending on many programs created by the bill. Instead of funding efficient programs that were experiencing budget shortfalls, Congress imposed many new programs which must continue to be funded once federal funding from the stimulus ceases.
For example, one provision requires Medicaid benefits to remain at or above July 1, 2008 levels, a period when states were enjoying budget surpluses. This tactless stipulation has tied the hands of state governors and legislatures and forced 15 states to impose new excise taxes and 10 states to consider raising income taxes which decrease the incentive to work and invest. These taxes are a direct result of the fiscal irresponsibility of the federal government and public policy that forces states to foot the bill on programs that are unaffordable and, in many cases, insolvent.
In the last 12 months, our nation has lost over 4 million jobs, and unemployment has risen to double-digit levels last seen decades ago. Now, talk in Washington centers around Democratic efforts to foster support for an additional stimulus bill. We only hope there will not be more failed spending bills that add to our debt and ultimately force states to raise taxes. We urge Congress to instead reconsider extending the 2001 and 2003 tax cuts to keep more money in the pockets of families and small businesses. Congress should reduce the capital gains tax to encourage investment in capital markets, and the corporate tax rate (second highest of all industrialized nations, according to the Organization for Economic Co-operation and Development) should be reduced to encourage development and expansion of businesses large and small, promoting increased employment and economic output.
Americans can only hope pragmatic men and women in Congress will have the fortitude to introduce legislation that fosters an environment that encourages small business expansion, rewards investment and entrepreneurial spirit and promotes responsible consumer behavior. Otherwise, any second stimulus bill is doomed to fail just like its predecessor.
Hunter Lipscomb is a graduate student majoring in business administration. He can be contacted at [email protected].