The Trouble With Harry

Will President Obama resist the tax-and-spend Congress?

PETE DU PONT

Article I of the Constitution gives Congress broad public policy powers, and Article II defines those of the president.

Congress fully understands that its constitutional powers are more or less equal to and fully independent of those of the president, and the president--every president--had better understand that truth. So one of the greatest challenges of our new president, with both houses of the legislature controlled by his own party, is persuading its members to follow his leadership.

All of which comes to mind as President Obama understands that the sagging American economy needs some strong government stimulus. The new Congress agrees with him but wants even greater government spending and control, and while the president said in his Inaugural Address that those "who manage the public's dollars" must also "spend wisely," Congress, wisely or not, wants to spend a great deal more money on most everything.

So the House Appropriations Committee, chaired by Rep. Dave Obey of Wisconsin, last week passed a significant portion of what will be an $825 billion stimulus bill. It contains $275 billion in tax cuts but substantially increases government spending on some 150 existing federal programs. Some increased spending programs make sense, for in our recession we do indeed need more money to fund unemployment benefits, food stamps and Medicaid.

But other spending increases are pure politics, involving a substantial expansion of the federal government's policy role. Four billion dollars to help hire, equip and pay state and local police forces won't stimulate the economy, but it will give Washington some control over police spending. Nor will $50 million for the National Endowment for the Arts, $2.1 billion for Head Start, or $16 billion more for Pell grants stimulate the economy; they are all standard congressional preferences but no help at all in economic stimulation, which is supposed to be the objective of the bill. In short, the House bill has no broad strategic vision, merely a bigger government spending goal.

Nor would much of the legislation have an immediate economic impact, for only a small portion of its funds would be immediately spent. Of the $18.5 it contains for renewable energy, only $3 billion would be spent by 2011. Similarly, of the $30 billion for highways, only $4 billion would be spent by 2011, and less than half of the $14 billion additional school construction money would be promptly spent.

Of the $80 billion in assistance to state governments for Medicaid and welfare benefits, it is estimated that only $30 billion would be spent by 2011, but we can be sure that the states would promptly maximize their use of these funds. Which leads to another thought: The bill also contains the previously mentioned $4 billion in federal funding so that states can continue to employ police, and $87 billion for Medicaid which Mr. Obey claims could also be used to avoid cutting teachers, police, and firefighters. Once in place, every state would argue that the federal funding must continue--"we need the money; we haven't recovered yet; without it teachers will be laid off"--so perhaps the federalization of state programs will become permanent as well.

One more troubling aspect of the Obey legislation is that it contains no sunset provision. If the bill's spending helps and the economy begins to recover (or if it recovers on its own), there is no limit on new government spending, which makes one think that the objective of the bill is to permanently increase the size, scope and spending of the federal government. And that, of course, would lead to higher taxes of various kinds to feed the government's appetite.

In short, the Appropriations Committee bill is not fresh thinking, but the old 1930s government thinking in the style of FDR adviser Harry Hopkins, who was said to have advised the president to "tax and tax, spend and spend, elect and elect!"

Far more sensible would be tax rate reductions. Each time past presidents have cut taxes--in the 1920s, '60s and '80s, as well as George W. Bush's 2003 tax cuts (which generated $785 billion in additional tax receipts)--the economy has expanded. As Investors Business Daily noted earlier this year, former White House economist Greg Mankiw cited data showing that every new dollar spent by the government expands the economy from $1 to $1.40, but in a study of tax cuts going back to 1947, each $1 in tax cuts generated $3 in additional GDP. Add to that making the economy stronger by pledging to extend the Bush tax cuts, create no government run health care, no climate bill with its costly and job-suppressing mandates, and no limits on free trade.

All of which raises the most important opportunity of the first month of the new administration: Now is the time for President Obama to step up, improve the Appropriations Committee's bill, and set a sound economic course for the coming years. Will our new president back up his pledge to "spend wisely" and force Congress to limit its spending increases, or will he allow it to substantially increase spending to support the core belief that government should be bigger today, tomorrow and always?