‘Line’ Items: Post-Labor Day Edition

A Lot of Work Ahead – The end of the long Labor Day weekend heralds the effective end of summer: the pools are closed, the kids are back at school, and summer vacations are over. Congress goes back to work in Washington next week. Members of Congress may be hard at work back home campaigning now, but tough tasks wait for them in DC as well.

Spurring the Economy Still a Work in Progress – With little improvement in the jobs picture, the White House is rolling out new proposals to stimulate the economy. On Monday the president announced a plan to improve the nation’s infrastructure, including a swift $50 billion dollar federal infusion to fund improvements to roads, rail lines and airport runways and a new infrastructure bank to finance longer term projects. Reportedly, higher taxes on the oil and gas industry will pay the costs of the plan. Tomorrow he is expected to call for a permanent extension of the corporate research and development tax credit, which will reportedly cost $100 billion and be paid for by closing other corporate tax loopholes. He will also propose allowing businesses to deduct the full cost of equipment purchases through 2011. Plans for paying for such policies over the longer term need to be fleshed out more. A White House statement on the infrastructure plan states that “As with other long-run policies, the Administration is committed to working with Congress to fully pay for the plan.” That is a hopeful sign that long-term offsets will be found to pay for the short term stimulus, as CRFB recommends.

Small Business Bill Awaits Big Break – The Senate plans to resume work next week on legislation (HR 5297) to aid small business that already has cleared the House. The package creates a $30 billion lending fund for small businesses and includes numerous tax breaks. It is ostensibly paid for, but one of the offsets involves allowing people to roll over their individual retirement accounts into Roth IRAs. Although the change will increase revenues in the next ten years, it will cost more afterwards. This is no more than a timing gimmick that increases long-term debt.

Much Laboring to Do Over Tax Cuts – One of the biggest policy debates is over what to do with the 2001/2003 tax cuts that will expire at the end of the year. The debate will become more intense as the Senate is expected to take up the issue this month. President Obama wants to permanently extend the tax cuts for the middle class while Republicans in Congress argue for extending all the cuts, even those for the wealthy. Many economists argue that a permanent extension is not feasible in light of the nation’s long-term debt issue. Some propose a compromise to extend the tax cuts temporarily, as in a year or two. CRFB wants any extension to be paid for in the longer term.

Orszag at Work in New Job – Former OMB director Peter Orszag published his first piece as a columnist with the New York Times yesterday. He writes that a permanent extension of the tax cuts is not fiscally feasible while letting them expire now could harm the economy. He offers a two-year extension as a compromise. He also argues that we cannot expect the bond market to ignore our mounting debt indefinitely and that market sentiment could change swiftly, and painfully, for the U.S. The problem will become more prevalent as the economy recovers.