CHN: Scaled-Down Stimulus Package Becomes Law
Measure’s Corporate Tax Breaks Overshadow Benefits to the Unemployed
After months of contentious debate, the House and Senate passed and the President signed into law a watered-down economic stimulus bill last week. Congress was finally motivated to act by the impending expiration of unemployment insurance benefits for those who lost their jobs in the aftermath of the September 11 terrorist attacks. While the “Job Creation and Worker Assistance Act” has been portrayed as a significant boost for laid-off workers, critics argue that the bill’s costly business tax cuts outweigh its limited benefits to the unemployed.
The legislation, passed in the House by a 417 to 3 vote and approved by the Senate by an 85 to 9 margin, provides 13 weeks in additional unemployment benefits to laid-off workers whose 26-week limit has expired. The bill does not extend eligibility for benefits to part-time workers, a provision Democrats had originally fought for. Other measures contained in previous versions of the bill designed to aid low-income workers, such as tax rebates and assistance with health care costs, are also not included in the enacted version of the legislation.
Another of the bill’s provisions reuthorizes supplemental grants for the Temporary Assistance to Needy Families (TANF) program. TANF supplemental grants, which expired last year, boost funding to states with historically low welfare payments or high population growth. In addition, the legislation extends the TANF contingency fund for a year. The fund provides limited assistance to states experiencing high rates of unemployment growth.
Although less costly than earlier GOP-backed stimulus measures, the recently enacted legislation is largely comprised of expensive, multi-year business tax cuts. The most costly tax cut in the bill allows businesses, over the next three years, to depreciate 30 percent of the value of new investments. According to recent analysis by the Center on Budget and Policy Priorities (CBPP), the depreciation bonus would cost nearly $97 billion over three years. If the provision was extended after three years, which is likely, total costs over the next decade could exceed $200 billion.
Furthermore, CBPP warns that the depreciation provision would cost the states – already experiencing budget shortfalls of about $50 billion – a total of $14.1 billion over three years. Unlike earlier versions of the stimulus bill, the new measure does not provide any fiscal relief to the states.
The bill also allows small businesses to write off expenses more quickly, provides incentives for investment in New York City, and extends several expiring tax breaks, including one allowing financial services companies to defer tax payments on overseas profits. This provision would be extended for five years, and nearly all of its $9 billion in tax breaks would go to corporations after fiscal year 2003.
Critics of the legislation argue that by providing multi-year tax breaks, the package loses its effectiveness as an economic stimulus tool. Furthermore, Federal Reserve Chairman Alan Greenspan has suggested that an economic stimulus package is unnecessary because the economy is recovering. Unemployment rates, however, are expected to continue to rise for a time after the economy has rebounded.