Probing the mysterious contents of US stimulus package

Because the ingredients are oft unknown, a European-born gourmet used to joke: "Only God can eat sausages."

Something similar can be said for the economic-stimulus package before Congress. Not many Americans know a lot about its components. Or if it will stimulate the economy when needed, or if it will come so late that business will already be enjoying a vigorous upturn.

Murray Weidenbaum, President Reagan's top economic adviser in his first term, says he's "agnostic" on this timing issue. But he cites Shakespeare's tragedy, Macbeth: "If it were done when 'tis done, then 'twere well it were done quickly."

That's not the case.

Democrat-Republican differences tied up a bill in the Senate last week. Yet ahead is reconciliation with a far different bill passed by the House and negotiations with President Bush on key features.

"It is disappointing that Congress hasn't gotten its act together quickly," says Mr. Weidenbaum, now a Washington University economist in St. Louis. He says the blame is "bipartisan" - criticizing both Democrats and Republicans.

Martin Feldstein, who succeeded Weidenbaum as chairman of Reagan's Council of Economic Advisers, has a similar complaint. The Harvard University economist notes that "virtually all" of the stimulus measures being considered "would be too slow to help if the private forecasters are right that we will be seeing positive growth by the second quarter, 2002."

"If we must" pass a bill, Dr. Feldstein says, its provisions should not have any adverse effects in the long term. He advocates tagging items with "sunset clauses" that expire soon.

Another prominent conservative economist, Nobel-prize-winning Milton Friedman, charges that: "So-called stimulus packages don't give any stimulus. They are a fake."

The Hoover Institution's Dr. Friedman is a "monetarist," holding that growth in the nation's money supply counts most in governing the ups and downs of the economy.

In the current scene, with the federal budget likely slipping into a deficit, any tax cuts and extra spending in the stimulus package means that Uncle Sam will have to borrow more money from the public through the sale of new Treasury securities.

So what Washington gives with one hand, it takes away with the other hand, Friedman argues. It is a wash as far as the entire economy is concerned.

Japan tried to pump up its weak economy with several huge spending programs in the past decade, Friedman adds. "It doesn't seem to have done much good."

Many other economists see some merit in the stimulus package as a stimulus effort. But there are measures in the bill, especially the House bill, that find few defenders. Critics say they are primarily pork for constituents or rewards to party campaign donors.

For instance, the House bill includes a measure that would repeal the Alternative Minimum Tax on corporations. The AMT aims at ensuring that firms pay at least some income tax even when they have a lot of tax deductions. The House bill would also rebate to 16 corporations past AMT payments totaling $7.4 billion.

These companies are the source of $45.7 million in campaign contributions since 1991. These include more than half a million dollars to George W. Bush's campaign, according to an investigation by Citizens for Tax Justice, the Institute on Taxation and Economic Policy, and Public Campaign.

Their report cites case after case in which firms and industries, their executives and families, contributed heavily to campaign coffers and subsequently received massive tax breaks.

In numbers, 41 companies gave $150 million to federal candidates and parties since 1991. Between 1996 and 1998 alone, they received $55 billion in corporate tax breaks.

The report takes the dark view: "The picture that emerges is of a profitable corporate America using campaign contributions cynically, to ensure they pay far less than their fair share in taxes."

Weidenbaum offers a more benign view. "Corporate contributors are very successful in getting access," he says. "But they are not always successful in getting legislators to change their minds. Most likely they are made to people with whom you already agree."

As for the content of the stimulus bills, Friedman approves of its tax cuts: "It's the only way to keep government spending down."

Feldstein favors advancing the income tax rate reductions, now scheduled for 2004 and 2006, to 2002. Most of the saved tax dollars will go to the well-off. But they might reduce their spending now if the rate cuts are repudiated, as sought by Democrats, he notes.

Weidenbaum gives high marks to provisions of the bill giving tax rebates or other breaks to those at "the bottom end of the income distribution" who are most likely to spend, not save, any extra income.

Some tax incentives for business would be useful, Weidenbaum adds. But the prime problem of business is excess capacity.