For those of you who read my position paper on the 2008 election, you know that one of my biggest criticisms of the Bush Administration was the growing federal budget deficit. Additionally, one of the reasons I supported Barack Obama was his willingness to rollback the Bush tax cuts as a way of bringing the budget closer to balance. I still believe that the budget deficit is one of the biggest reasons why our economy is in the situation it currently is. In looking at the current versions of ARRA (both the House and Senate versions), there is no doubt that this bill will cause the deficit to get worse at least in the immediate future.
You would think that this would cause me to oppose this bill. However, I have come to the conclusion that passage of this bill is better than the alternative, which is doing nothing. The federal budget is already in a deficit and with the economy in a state of recession, that deficit will only get worse, even if we don’t increase spending. This is due to the fact with a recessed economy, incomes are down and growth is down. Since our taxes are built on an income based tax, when these drop off, our tax revenues fall as well. In fact, if the recession deepens, incomes will continue to fall, further reducing tax revenues. Additionally, more people will lose jobs thereby putting a further strain on governmental programs such as unemployment.
So this creates a choice between no short term prognosis for recovery or trying to jump start the economy in the short term. In either scenario, the deficit will increase. In the long term, doing nothing may result in the economy coming back on its own, but this may take years. Doing nothing also runs the risk of things actually getting much worse before a recovery ever occurs. ARRA is designed to provide a jump start, and if that works, it will get us out of the recession much quicker and allow a recovery to take place. Which is why economists from both sides of the political aisle are saying that something should be done sooner rather than later.
What is included in ARRA? According to the White House, ARRA is intended to jumpstart the economy by doing the following:
- Doubling the production of alternative energy in the next three years.
- Modernizing more than 75% of federal buildings and improve the energy efficiency of two million American homes, saving consumers and taxpayers billions on our energy bills.
- Making the immediate investments necessary to ensure that within five years, all of America’s medical records are computerized.
- Equipping tens of thousands of schools, community colleges, and public universities with 21st century classrooms, labs, and libraries.
- Expanding broadband across America, so that a small business in a rural town can connect and compete with their counterparts anywhere in the world.
- Investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries.
In addition, ARRA will also extend unemployment benefits and other assistance for individuals. Finally, another large component to the bill are tax cuts aimed and lower and middle income tax payers. All in all, while it is not a perfect bill, it should provide a much needed boost to our ailing economy.
As for the deficit, once a recovery begins to occur, I think it will be imperative for President Obama and Congress to do what it needs to start and bring the budget back into balance. In the meantime, I think it is too important for the government to simply do nothing. ARRA will make much needed investments in infrastructure and new industry. In the process, it will also put much needed money into the struggling economy. For those reasons, Congress should pass the American Recovery and Reinvestment Act of 2009.