Will the stimulus work?

What happened

President Bush and House Speaker Nancy Pelosi struck a deal on an economic stimulus package that would include tax rebate checks of $600 for individuals and $1,200 for couples. The Senate is under pressure to pass the measure quickly, but Senate Majority Leader Harry Reid said the House plan was just “a first step.” Reid said senators hoped to add to the $150 billion package with such programs as a summer jobs program for young people, and other Democrats favor increased public works spending. (The New York Times, free registration)

What the commentators said

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“It's amazing how quickly President Bush and House Democrats can put aside partisan differences when they have important constituencies to coddle,” said USA Today in an editorial. This package has something for everybody—it puts money in the hands of the poor, cuts taxes on businesses, and offers help to ease the housing slump—and it’s “the kind of temporary, targeted package” that just might help. If only the politicians “could show the same “urgency and willingness to work together” on long-term financial problems.

Let’s hope the Senate manages to “widen the package to steer more money to low and middle income earners,” said the San Francisco Chronicle in an editorial. People in need are “most likely to spend the checks to rev up the economy.”

Sending checks to people “in good financial shape” does nothing to stimulate the economy, because they’ll just park the money in savings, said Paul Krugman in The New York Times (free registration). So Democrats should not have “buckled” to the Bush administration’s insistence on dealing in people with “good income, good credit, and secure employment.” Focusing the benefits on people who are “living check to check” would have done “double duty” by alleviating suffering as well as pumping up consumer spending.

What’s to complain about when people who pay no income tax in the first place end up with a “rebate”? said Rich Lowry in the New York Post (free registration). Democrats had good reason to insist on this—40 percent of U.S. households fall into this category. It’s worth noting that fact because it certainly “puts the lie to the notion that the federal tax code is a vampirish scheme by Republican economic elites to privilege the rich at the expense of the poor.”

“Trained economists” know that the best stimulus is cutting “the highest tax rates on the highest income earners,” said Arthur Laffer in The Wall Street Journal. This increases all kinds of tax receipts, and leads to lower government spending by building “a stronger economy with less unemployment and less welfare. Unfortunately, admitting that is not a good way to “curry favor” with one’s “political benefactors.”

Talk about currying favor, said David Sirota in The Denver Post. Millions of Americans “have been hurting for quite a while” as paychecks stagnated, foreclosures skyrocketed, and health-care premiums rose by double digits. But Treasury Secretary Henry Paulson and President Bush “gushed” about how strong the economy was until recently, when their buddies on Wall Street started feeling the pain.

This compromise isn’t perfect, said The Washington Post in an editorial (free registration), but it really might help stave off a recession if both parties can set aside their misgivings and pass it quickly. Congress can set aside its misgivings.

Don’t get your hopes up, said the Minneapolis-St. Paul Star Tribune in an editorial (free registration), because past attempts to boost spending with recession looming have had mixed results -- most people just used rebates to pay off debt.