I meant to say 5 percent rooms and meals tax.
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First Things First, Mr. President
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Obama won the election, and in normal times, his campaign agenda ought to be front and center. But these are not normal times, and what's most important now—as he repeatedly emphasizes—is to prevent the recession from feeding on itself. This is a clear danger. Consumer spending (70 percent of the economy) has declined for five consecutive months. Eroding tax revenues may result in state budget deficits between $200 billion and $250 billion through mid-2011, says the Center on Budget and Policy Priorities (CBPP), a liberal advocacy group. Required to balance their budgets, states face increased taxes or large spending cuts.
The compelling case for a big "economic stimulus" package is that it would cushion these and other spending declines. The odds are that any package will include the following: some direct payments to states and localities; a renewed extension of unemployment benefits; tax cuts—reflecting Obama's campaign pledge— of $500 for most single workers and $1,000 for most two-earner families; and spending for infrastructure (roads, bridges, sewers, schools and, perhaps, windmills).
The great political virtue of the stimulus package is that it enjoys broad support. State and local officials, business groups and unions all favor doing something. Indeed, everyone craves a piece of the action. The auto and housing industries urge tax breaks for buying new cars or homes. These sound appealing but may not create much additional demand, notes the CBPP's Robert Greenstein. Most benefits may go to people who would have bought anyway. Obama wants Congress to pass the stimulus soon after his Inauguration. Assuming he gets his wish, it's then that he must make his crucial choice.
The temptation will be to press ahead quickly with a "bold" legislative agenda—to ape the New Deal. This would be a mistake; most of Obama's broader proposals aren't connected to the present crisis. Psychology counts, and the psychology of bruising legislative battles will not bolster confidence. The country does need to face up to its health and energy problems as well as deficit-ridden federal budgets. But trying to do too much too soon risks doing none of it well. We—and he—are caught up in a web of contradictions. In the long run, we need to discipline our appetite for health care and energy; we need to reconcile our desire for government benefits and our willingness to be taxed. But the immediate need is to avert an economic free fall. Obama was elected on a huge wave of economic anxiety. His most essential job is to get the country beyond that.
© 2008
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