How bad is the stimulus bill just passed by the Senate? Well, at least as bad as the one passed last week by the House of Representatives, but probably not as bad as the final bill that will land on President Barack Obama's desk, possibly as soon as the end of this week.
Don't take my word for it. In a report to Sen. Judd Gregg (R-N.H.), the nonpartisan Congressional Budget Office (CBO) laid out in plain English—well, economic language—that the Senate bill would eventually cause not a stimulus but a recession in "the longer run." As CBO's director Douglas W. Elmendorf wrote on February 4:
At your request, the Congressional Budget Office (CBO) has conducted an analysis of the macroeconomic impact of the Inouye-Baucus amendment in the nature of a substitute to H.R. 1 [the House stimulus bill]. CBO estimates that this Senate legislation would raise output and lower unemployment for several years, with effects broadly similar to those of H.R. 1 as introduced. In the longer run, the legislation would result in a slight decrease in gross domestic product (GDP) compared with CBO’s baseline economic forecast.
On the CBO's The Director’s Blog, Elmendorf explains why the Senate legislation would eventually reduce economic output: “The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to 'crowd out' private investment—thus reducing the stock of private capital and the long-term potential output of the economy.”
The CBO's latest projection for fiscal year 2009's deficit is that it will reach $1.2 trillion (that’s eleven zeros after the 2) before factoring in any stimulus spending or war spending. That’s 8.3 percent of GDP and far higher than any deficit under President Ronald Reagan in the 1980s (when deficits reached 6 percent of GDP). In fact, you have to go back to World War II to find deficits higher than the projections for FY 2009.
Truly massive deficits won't surprise anyone who has looked at the Senate version of the stimulus bill. Much has been made over the "compromises" and negotiations behind the Senate finally arriving at something that garnered enough support for passage. Here are three large categories of expenditures where senators managed to sort out their differences and find a compromise that they can all live with. If only things were so simple for us taxpayers.
1. Billions of dollars in spending exclusively devoted to benefit federal employees.
- $5.5 billion for making federal buildings "green" (including $448 million for the Department of Homeland Security's headquarters)
- $198 million to design and furnish the DHS headquarters
- $200 million for workplace safety in Department of Agriculture facilities
- $75 million for the Smithsonian Institution
- $300 million more for hybrid and electric cars for federal employees (see below)
- $180 million for construction of Bureau of Land Management facilities
- $500 million for wildland fire management
- $110 million for construction for the U.S. Fish and Wildlife Service
- $522 million for construction for the Bureau of Indian Affairs
- $412 million for Centers for Disease Control headquarters
- $500 million earmark for National Institutes of Health facilities in Bethesda, Maryland
- $100 million for constructing U.S. Marshalls office buildings
- $300 million for constructing Federal Bureau of Investigation office buildings
- $800 million for constructing Federal Prison System buildings and facilities
- $307 million for constructing National Institute for Standards and Technology office buildings
- $1 billion for administrative costs and construction of National Oceanic and Atmospheric Administration office buildings
That spending was added to an earlier version of the bill, which also benefited federal employees by splurging on things such as the following:
- $600 million to buy hybrid vehicles for federal employees
- $125 million for the Washington, D.C. sewer system
- $75 million for salaries of employees at the FBI
- $6 billion to turn federal buildings into “green” buildings
- $88 million for renovating the headquarters of the Public Health Service
- $5.5 million for “energy efficiency initiatives” at the Veterans Administration's “National Cemetery Administration”
- $60 million for Arlington National Cemetery
- $75 million to construct a new “security training” facility for State Department Security officers when they can be trained at existing facilities of other agencies
- $110 million to the Farm Service Agency to upgrade computer systems
- $200 million in funding for the lease of alternative energy vehicles for use on military installations
2. Wasteful spending that is not directly targeted at federal employees:
Arguably the best item in the Senate bill is a $1,500 tax credit to anyone that purchases “neighborhood electric vehicles”—also known as golf carts. The total estimated cost of that giveback is $300 million. Purchasers of motorcycles and three-wheelers shouldn't despair, however, as there are benefits available for them, too.
And then there are these:
- $2 billion for a FutureGen near-zero emissions powerplant in Mattoon, Illinois
- $2 billion for manufacturing advanced batteries for hybrid cars
- $650 million for the digital TV (DTV) transition coupon program
- $1.2 billion for summer jobs for youth
- $200 million for public computer centers at community colleges and libraries
- $750 million earmark for the National Computer Center
- $10 million to fight Mexican gun-runners
- $850 million for Amtrak (on top of its regular subsidy)
- $100 million for lead paint hazard reduction
- $275 million for flood prevention
- $65 million for watershed rehabilitation
- $650 million for abandoned mine sites
- $1.3 billion for NASA (including $450 million for "science" at NASA)
- $100 million to clean up sites used in early U.S. atomic energy program
- $10 million for urban canals
- $1.5 billion for carbon capture projects under sec. 703 of P.L. 110-140 (though the original section only authorizes $1 billion for five years)
- $500 million for state and local fire stations
3. Tax cuts and tax breaks that don't deliver anything close to real reform.