Bush's Plan: Timely? Kinda. Temporary? Not really. Targeted? Not at all.

Though I'm tempted just to make that title my whole post, I guess I should explain a bit more. President Bush finally explained [1] his new economic stimulus package earlier today and, while it's not as terrible as it could be, it's still pretty bad.

I got deeper into this subject in my post [2] on Monday, but suffice it to say that there seems to be a fair amount of agreement that a good economic stimulus package should be temporary, targeted, and timely. Bush's announcement wasn't exactly a fully fledged proposal, but he proposed the following "principles"—demands is probably a better term—that he expects a congressional stimulus package to meet:

• Include an income tax cut.
• Be about 1 percent of GDP ($140-150 billion).
• Be "broad based."
• Include tax cuts for businesses as well as individuals.
• Not include any tax increases.
• Take effect right away and be temporary.

Bush also called on Congress to make his tax cuts permanent, though I didn't include that on the list because he seems to be hinting that he doesn't expect that to be included in a stimulus package. More on that in a moment, but first let's evaluate his demands.

An income tax cut is not the right way to stimulate the economy. The people who are hardest hit by a recession are the poorest and they don't pay any income tax. Furthermore, a "broad-based" tax cut will help many people who aren't in bad enough financial shape that their consumption decisions will be affected noticeably by such a cut.

This isn't the whole problem though. A stimulus package also should deliver as much cash into the economy as possible. A very poor person will almost certainly spend any money they get. A rich person will not. The same goes for businesses which are unlikely to change their purchasing decisions on the basis of a slight variation in their tax costs. What's more, most businesses manage to avoid [3] paying corporate income taxes anyway.

This brings us to the last and worst part of Bush's speech, his call to extend his 2001 and 2003 tax cuts. He claims that uncertainty over future tax burdens is hurting businesses and individuals. Except that the primary beneficiaries of the Bush tax cuts were the wealthiest people in society, the exact people who have enough money to weather small variations in their income without much effect.

This is another example of the point I made in my earlier post. Conservative leaders care more about giving money to rich people and businesses than they do about actually helping the economy. And that makes sense for them because for the most part they are fairly well of or identify with those who are. Well-off people, after all, aren't hurt in a visceral way when the economy is doing poorly. They'd rather pocket a tax cut and call it a day than actually try and stimulate the economy.

So what would a good package look like? It wouldn't cut taxes on businesses or the well-off. It would include help for people who can't say afloat in the current economic storm. It would include increases in food stamps and a cut in the payroll tax. It might also include boosts to unemployment and other direct aid to the poor and unemployed.

But don't take my word for it, listen to the good people at the Congressional Budget Office, who determined [4] much the same thing. And when it comes to the Bush tax cuts not even [5] Bush appointee Ben Bernanke would endorse the move.

Finally, absent from this discussion entirely is any acknowledgment that our current situation was avoidable [6]. Democrats should be using this as an opportunity to point out that theres a basic problem with an economy where the rich are getting richer faster than everyone else and the richest of the rich are doing so even faster than the merely rich. Meanwhile the median household has stagnated [7] for the better part of a decade.

Update: Forgot to mention Isaiah's piece [8] about Bob Kuttner's take on what an optimal stimulus package would be.