Why Obama is pushing for stimulus in 'fiscal cliff' deal (+video)
President Obama's opening offer in 'fiscal cliff' talks includes $255 billion in stimulus spending – tax cuts, incentives, and more. It could be a bargaining ploy or a bid to offset rising taxes on the rich.
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The argument for extending the tax cut is that it helps lower-income workers who live paycheck to paycheck. “The difference in the paycheck might be the ability to pay the electric bill for someone or the chance to go to a sit-down restaurant once a month,” says Chris Christopher, an economist at IHS in Lexington, Mass.Skip to next paragraph
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The argument against continuing the cut is that it is weakening the Social Security Trust Fund. In order to make up for the loss of contributions, the government taps the general tax revenues, says Pamela Tainter-Causey, a spokeswoman for the National Committee to Preserve Social Security and Medicare.
“It sets up Social Security to compete for funding from the general fund,” she says. “It’s a perfect set up for people who are gunning for the program and claim we can’t afford it now.”
Business tax incentive
The second largest program proposed by Obama would be the extension of accelerated depreciation for business, which would cost the US Treasury about $65 billion in fiscal year 2013, according to the Congressional Budget Office.
Two years ago, business was allowed to accelerate the write-off of 100 percent of its spending on certain capital equipment. Capital spending on equipment and computer software soared by 18.3 percent in 2011.
Then, this year, the benefit to business was cut in half to 50 percent. Capital spending sank in the third quarter by 2.7 percent compared with the same quarter the prior year. With business interest in using the tax break diminishing, economist Gregory Daco of IHS says “it’s a goner.”
Obama has also proposed a $50 billion infrastructure bank. The idea is to fund roads, bridges, tunnels and other large projects that last for a long period of time. “At the moment the funding is done on a cash basis – you have to pay for it as you build it,” says Mr. Collender.
Democrats have been trying to get Congress to fund the bank for the past 10 years, he says. “It does not have a chance of getting through the House," which is controlled by the Republicans, says Mr. Collender.
And, finally, Obama wants to extend unemployment benefits, which would cost about $30 billion.
Under current law, if Congress does nothing, the maximum number of weeks in which an individual could receive jobless will drop to 26 from the current 73 weeks for states with unemployment over 9 percent and 63 weeks for states with unemployment over 7 percent.
If Congress does nothing about the program during the lame-duck session, some 2.1 million jobless will lose their benefits in the first week of January, says Judy Conti, a federal advocacy coordinator at the National Employment Law Project (NELP) in Washington. By the end of the March, she says, another 900,000 people will lose their benefits.
“Forty percent of the unemployed are long term unemployed,” she says. “They have been out of the workforce for over six months.”