Grading the Stimulus

My TPC colleagues—most having taught at some point in their careers—couldn’t resist. They’ve given grades to the major tax provisions of the stimulus bill now working its way through Congress. While you can argue over the specific grades (and we surely did), the benefit of this exercise is that it forces you to look at the relative value of each of the elements of the plan.

For a first pass, TPC graded the Ways & Means bill, and concluded that the best proposals of the bunch are those that give temporary tax relief to low-income families. It makes sense, since they are the most likely to spend the money they receive. As I noted in a recent post, even these are far from perfect, but they should help to get the struggling economy get back on its feet.

On the business side, best in show is a technical change that gets cash to once-profitable firms that have fallen into the red in today’s rotten economy. The proposal allows them to carry-back 2008 and 2009 losses for five years, so they can redo prior tax returns and get immediate refunds. Like the most beneficial individual tax cuts, this one gets cold cash into businesses’ hands so, hopefully, they can spend it. However, like the best of the individual cuts, it too is flawed. The problem: It will waste money by subsidizing some businesses that are doomed to fail.

By contrast, the worst ideas are those that either subsidize economic activity that would have happened anyway, fail to help businesses that are in such trouble they cannot invest, or are simply badly targeted. Many, such as expanding unsuccessful tax incentives to hire unskilled workers, are unlikely to accomplish very much.

That’s TPC’s take anyway. We’ll update our grades once the Finance Committee has marked up its version. Give the report card a read and let me know what you think.