Boehner: GAO Report Confirms Republican Concerns About Stimulus Waste

House Republican Leader John Boehner (R-OH) issued the following statement on the nonpartisan Government Accountability Office report on the implementation of the Democrats’ trillion-dollar “stimulus” spending bill, which noted that many states do not currently have the ability to ensure “stimulus” money is being spent responsibly:

“This report confirms some of taxpayers’ worst fears about the flawed ‘stimulus’ spending bill that was rushed through the Democratic Congress. It indicates that many states do not have the ability to ensure ‘stimulus’ dollars are spent responsibly, and much of the ‘stimulus’ money is likely to be spent in a manner that has nothing to do with creating jobs. As a result of the flawed ‘stimulus,’ Washington has seized hundreds of billions of dollars from our children and grandchildren under the flawed premise that we can spend our way back to prosperity, and this report provides further confirmation that the money is in danger of being squandered in a massive act of generational theft. At a time when middle-class families and small businesses are looking for real solutions to help create jobs and rebuild their savings, don’t the American people deserve better?

“In recent weeks, we have learned that taxpayer dollars are being used to fund a skateboard park in Rhode Island, bike racks in Washington, DC, and highway studies instead of construction projects in Ohio – all in the name of economic ‘stimulus.’ Today’s report is a warning that we may have only seen the tip of the iceberg so far when it comes to the waste and abuse of taxpayer funds resulting from the so-called ‘stimulus.’ Republicans had a better solution to get our economy moving again – a proposal that would have created twice as many jobs at half the cost of the Democrats’ flawed plan. While I am disappointed the Democrats opposed our plan, I am hopeful they will finally decide to work with Republicans and craft better solutions to the problems facing the American people.”

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'Cash for Clunkers' Amendment Withdrawn From Senate Stimulus Bill

/PRNewswire-USNewswire/ -- The "Cash for Clunkers" amendment to the United States Senate stimulus package was withdrawn from the bill on Thursday. The "Cash for Clunkers" program would have earmarked federal funds for car owners to trade in their sport utility vehicles in exchange for vouchers to be used to obtain newer, more fuel efficient vehicles.

"We are thrilled that this amendment was withdrawn from the stimulus package," said Kathleen Schmatz, president and CEO of the Automotive Aftermarket Industry Association (AAIA). "This amendment was full of potholes from the beginning and once the Senators were informed of all the unintended harmful consequences that would have resulted from inclusion of this amendment in the bill, they made a very wise and informed decision to remove this amendment from the stimulus package."

Congress and states have considered "Cash for Clunkers" proposals in the past and in many cases have decided against them. Many legislators have come to realize the unintended consequences of this program and that they are not a cost effective use of government money.

"I want to thank our AAIA staff and most importantly our membership for their hard work in getting out the word about the problems 'Cash for Clunkers' would cause," continued Schmatz. "Their letters, emails and phone calls opposing 'Cash for Clunkers' were instrumental in getting this amendment removed. The elimination of this amendment is a great victory for vehicle owners as well as for every small business owner who is involved in the automotive industry."

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Obama Stimulus Plan Breaks Campaign Promise to Small Businesses

/PRNewswire-USNewswire/ -- On February 22, 2008, Barack Obama released the following statement:

"It is time to end the diversion of federal small business contracts to corporate giants."

(http://www.barackobama.com/2008/02/26/the_american_small_business_le.php)

The statement was made in response to more than 12 federal investigations, which found billions of dollars in federal small business contracts had been diverted to Fortune 500 corporations, their subsidiaries and thousands of other large businesses in the United States and Europe.

Report 5-15 from the Small Business Administration (SBA) Office of Inspector General stated, "One of the most important challenges facing the SBA and the entire Federal government today is that large businesses are receiving small business procurement awards and agencies are receiving credit for these awards." (http://www.sba.gov/IG/05-15.pdf)

Since the exposure of this issue in 2002, nearly every major newspaper in the United States has covered the diversion of federal small business contracts to Fortune 500 firms.

Now, in the face of one of the most catastrophic economic disasters in U.S. history, President-elect Obama has failed to include any provision in his economic stimulus plan to stop the diversion of billions of dollars in federal small business contracts to Fortune 500 firms.

President-elect Obama's refusal to take decisive action to stop the diversion of up to $100 billion a year in federal small business contracts seems to be a direct contradiction to everything he has said about taking "dramatic action" to "put people back to work."

Many of the nation's most respected experts on the economy like Dr. Laura Tyson and Carly Fiorina agree the best way to stimulate our nation's failing economy is to direct federal infrastructure funds to small businesses. Tyson is the former Chair of the U.S. President's Council of Economic Advisers during the Clinton Administration and is currently an economic adviser to President-elect Barack Obama. Fiorina is the former CEO of Hewlett-Packard and McCain campaign economic advisor.

President-elect Obama's refusal to stop the fraud and abuse in federal small business contracting programs will only result in more lost jobs at middle class firms across the nation.

"It does not make sense to throw nearly a trillion of hard earned taxpayer dollars at an economic stimulus plan and then ignore fraud and abuse in longstanding federal programs specifically designed to create jobs and stimulate the middle class economy," President of the American Small Business League Lloyd Chapman said. "It would take one sentence in this bill to create thousands of jobs and to redirect billions of dollars in federal contracts to legitimate small businesses all around the country. My advice to President-elect Obama is that if he sincerely wants to create jobs in America he needs to include this one line in the stimulus package, 'The federal government can no longer report awards to publicly traded companies as small business awards.'"

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If Obama's Plan Doesn't Seem to Make Sense, it's Because it Doesn't

America's largest third party says that President-elect Barack Obama's spending plans are based on flawed economics. "If you think Obama's economic plans don't make sense, it's because they don't," says Libertarian Party National Chairman William Redpath.

"Americans are taking a look at Obama's economic plans and scratching their heads," says Redpath. "And, there is good reason to do so. The theory behind his plan, Keynesian economics, has been unsuccessfully tried by multiple presidential administrations in the past. It didn't work for President Hoover in the early 1930s. It didn't work for President Roosevelt in the Great Depression. It didn't work for President Ford in 1970s. Why does Obama think it will work for him now?"

"Just look at the last eight years," says Redpath. "President George Bush did more to increase government spending during his administration than any president in American history. Yet, this is the same period in which we entered into economic decline. Is there any reason then to believe that more government spending will pull us out of this decline?"

"Keynesians believe that government can jump-start the economy by creating artificial demand through massive spending projects," says Redpath. "This debt is later repaid with magic money borrowed from foreign countries, printed out of thin air or from tax increases. But, unfortunately, government can't spend billions of dollars without incredible amounts of waste, through fraud or worthless projects. So, much of the money taken out of the economy, in order to jump-start the economy, is lost, leaving American taxpayers with a flat economy and even more debt to pay."

"Politicians like Keynesian-based spending plans because it makes it easy to bring pork projects back to their districts, and they'll be out of office before they ever have to worry about paying down the debt," explains Redpath. "It's all about power. It's not about helping the American people."

"Obama's plans will put the United States another trillion dollars in debt while doing nothing to pull us out of the recession," says Redpath. "Taxpayers have good reason to be skeptical of the stimulus plan because it is their money backing Obama's multibillion-dollar boondoggle."

The Libertarian Party recommends permanent tax cuts for individuals and businesses as an alternative to government spending projects, which have proven records of economic stimulation. The Party also states that any cuts in taxes must be offset by cuts to spending.

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Economic Recovery Watch: Sobering Jobless Data Highlight Need for Recovery Package to Focus On Hard-Hit Families and States

/PRNewswire-USNewswire/ -- Since a decline in overall demand is the main cause of rising unemployment and the weak economy, the economic recovery package should focus on putting money in the hands of people who will spend it quickly, according to the Center on Budget and Policy Priorities.

Most economists agree that two cost-effective ways to do this are by helping hard-pressed families, such as those with low incomes and those that have experienced layoffs, and helping states avert steep budget cuts and tax increases that would reduce overall demand. In fact, these measures would do more to protect jobs and the economy than the business tax cuts and certain other measures that some in Congress are promoting as "job creators."

These conclusions are widely shared among economists. Mark Zandi, chief economist for Moody's Economy.com and a former advisor to presidential candidate John McCain, endorsed them earlier this week, stating: "To provide the largest bang for the buck, a well-designed stimulus plan should include a temporary increase in government spending... The most efficacious spending includes extending unemployment insurance benefits, expanding the food stamp program, and increasing aid to hard-pressed state and local governments."(1)

-- Poor families are more likely than businesses or higher-income families to spend quickly any new income they receive. The Congressional Budget Office has stated that "the efficacy of fiscal stimulus depends critically on households' tendency to spend the income placed in their hands."(2) CBO has also stated, "Lower-income households are... more likely to be among those with the highest propensity to spend. Therefore, policies aimed at lower-income households tend to have greater stimulative effects."(3)

The reason is simple. Families that are having difficulty affording food, shelter, and other necessities will spend any new income they receive to cover those basic costs. Higher-income families, in contrast, are likely to save more of any extra income.

So are businesses. As Goldman Sachs has stated, "companies don't spend money just because it's there to spend. To justify outlays for new projects, the expected returns have to exceed the costs, and that usually requires growth in demand strong enough to put pressure on existing resources."(4) This is why a 2008 CBO analysis comparing different stimulus proposals put corporate tax cuts in the lowest category for cost-effectiveness.(5)

-- Food stamps and unemployment insurance are two of the most effective forms of stimulus. The CBO analysis cited above put expanded food stamps and unemployment insurance in the highest category for cost-effectiveness as stimulus. "Additional [food stamp] benefits are likely to be spent rapidly by recipients, who tend to be experiencing periods of economic difficulty," CBO noted.

As for unemployment insurance, then-CBO director Peter Orszag told Congress in 2007 that "research has shown that the unemployment insurance system is among the most effective dollar-for-dollar economic stabilizers that we have in terms of counterbalancing periods of economic weakness."(6) Supporting spending by unemployed workers in hard-pressed communities helps prevent the spread of layoffs and loss of jobs in those communities.

-- But unemployment insurance reforms are needed. Fewer than half of unemployed workers actually receive jobless benefits because the unemployment insurance program, designed in the 1930s, is seriously out of date in many states. Most states, for example, require applicants to look for a full-time job, even if they are parents raising very young children and were working part-time before being laid off. These laws -- designed when most workers were married men who were the sole breadwinners for their family -- particularly disadvantaged women, who are much more likely to work part-time than men.

Congress is considering financial incentives to encourage more states to adopt reforms that would allow more part-time and other laid-off workers to qualify for benefits. States that adopt the reforms would receive temporary federal funds to cover the cost of paying the associated benefits for several years, but there would be no ongoing cost to the federal government, because regular unemployment insurance benefits are fully state-funded.

-- Fiscal relief is also badly needed. Prior to the recession, states not only balanced their budgets every year but also had built up the largest budget reserves in recent history. (This refutes the claim by some that states' budget problems reflect fiscal mismanagement.) The recession has largely wiped out these reserves. Already 30 states have had to cut services ranging from health care to education, and more than a dozen have raised revenues.

As a result of the deepening recession, state deficits are likely to total $350 billion to $370 billion over the next 2 1/2 years. Without fiscal relief to close part of that gap, states will have to institute exceedingly deep budget cuts and tax and fee increases. Both kinds of measures reduce overall demand: tax increases leave consumers with less money to spend, and budget cuts reduce state payments to vendors, benefit recipients, and others, thereby taking money out of the economy. These measures would undercut the stimulus Washington is trying to provide.

-- Loans are no substitute for fiscal relief. A few policymakers support converting the fiscal relief to loans. This would render it ineffective as stimulus. Many states have legal barriers that explicitly prohibit them from borrowing funds to cover operating expenses. Even states that could accept the loans would be reluctant to do so, since they cannot know when their budgets will recover sufficiently to begin repaying the loans. In the last two recessions, most states' fiscal problems continued two to three years after the economy hit bottom.

Funds for infrastructure projects that can be undertaken in the next couple of years constitute effective stimulus, as well. Such infrastructure investments are appropriate measures to include in a recovery package.

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.

NOTES:

(1) Mark Zandi, "The Economic Impact of a $750 Billion Fiscal Stimulus Package," testimony before the House Democratic Steering and Policy Committee Forum, January 6, 2009.

(2) Congressional Budget Office, "Economic Stimulus: Evaluating Proposed Changes in Tax Policy," January 2002, http://www.cbo.gov/ftpdoc.cfm?index=3251&type=0.

(3) Congressional Budget Office, "Options for Responding to Short-Term Economic Weakness," January 2008, http://www.cbo.gov/ftpdocs/89xx/doc8916/01-15-Econ_Stimulus.pdf.

(4) GS Weekly, September 21, 2007.
(5) CBO, 2008.

(6) "State of the U.S. Economy and Implications for the Federal Budget," Hearing before the House Budget Committee, House of Representatives, December 5, 2007.

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Georgia Housing Leaders Call on Congress to Help Main Street

(BUSINESS WIRE)--The Georgia housing industry called on Congress January 7 to address the housing crisis that is at the root of the nation’s recession. Rick Porter, owner of Richport Properties, Inc.; Kenny King, president of Kingsland Corp.; and Kurt Cannon, owner of Rabun Builders, Inc. and the president of the Home Builders Association of Georgia, urged Congress to enact bold measures that will stimulate the housing market and, in turn, revive the local, state and national economies.

“Housing is central to our economy and is an engine of production that can lead us out of the recession,” said Porter. “But it is crucial for Congress to enact a major stimulus package to stop the decline in home values, stem the tide of foreclosures, stabilize financial markets and re-ignite consumer demand.”

To get the Georgia economy moving again, the housing industry is urging Congress to support enhancements to the home buyer tax credit and provide below-market, 30-year fixed-rate mortgages for home purchases.

Specifically, the legislation should include:

1. A 10 percent tax credit for all qualified home buyers capped at 3.5 percent of FHA, Freddie Mac or Fannie Mae loan limits (equaling $10,000 to $22,000 depending on geographic market). All primary home purchases through December 31, 2009, would be eligible. Repayment would be required only if the home was sold within three years. And the credit would be available at closing, making it easier for buyers to use it as a downpayment;

2. A below-market, 30-year fixed-rate mortgage for home purchases. The second component of the stimulus plan would provide qualified home buyers with 30-year fixed-rate mortgages at 2.99 percent interest on contracts closed until June 30, 2009 and 3.99 percent interest on closings between June 30 and December 31, 2009; and

3. Continued measures to reduce foreclosures and keep people in their homes.

The housing industry representatives cited a similar plan with both a tax credit and a mortgage rate subsidy that was enacted in 1975 when the nation was also in the midst of a recession. That successful stimulus plan jump-started the depressed economy, and the effects continued in communities across the country long after the measure expired.

“We’ve been in business for about 20 years, and we’re currently working on a project of 23 units which we began back in 2005,” explained Kenny King, president of Kingsland Corp., out of Snellville. “In all my years in home building, this project is probably our best product in our best location, but in this market, we can’t turn the units over. We sold three in 2007, and only four in 2008 – we’ve got 16 left and we don’t know how we’ll sell them. Consumer confidence is basically ‘zero.’ We need stability and confidence brought back to the housing market to end this extended recession.”

Kurt Cannon, owner of Rabun Builders, Inc., from Clayton, and the current president of the Home Builders Association of Georgia, builds second-home and retirement properties. “Our business is basically just shutting down. Last year we only did 25 percent of what we should have done, and now we are finishing up projects without any others lined up. Over the past three months, I’ve talked to between 70 and 80 builders around the area, and I keep hearing the same story over and over again. Builders with high credit ratings, with decades of good credit, current on their payments, are suddenly told by their banks that they have to pay off their loans in 10 days or the bank will foreclose. Of course, they end up foreclosing and the bank just ‘fire-sales’ the neighborhood. It’s the same story all around. We must stop the bleeding.”

“When the housing industry is in a crisis, the entire community is affected,” continued Porter. “Retailers, manufacturers, service providers and even the local government are affected. Most important, local residents suffer.”

“Three million home building-related jobs across the country have been lost as a result of the slowdown in housing production, which represents $145 billion in lost wages and $4.9 billion in lost purchases,” said National Association of Home Builders (NAHB) economist Bernard Markstein. “Deterioration in these jobs has now spilled over into virtually all sectors of the U.S. job market and the economies of states like Georgia.”

"We are leaving no stone unturned in our efforts to convince Congress to quickly enact a robust housing stimulus program. There’s no question that stopping the decline in home values and restoring demand for housing is the fastest and most effective way of reviving the economy," Porter said.

The housing leaders in Georgia are part of a new coalition called Fix Housing First, consisting of more than 600 organizations, home building companies and manufacturers advocating for this major stimulus package to stem the decline in home values, stabilize financial markets and re-ignite consumer demand. To learn more about Fix Housing First, go to www.fixhousingfirst.com.

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Congress Should Stimulate Economy With $500 Billion in Private Investment By Temporarily Reducing U.S. Business Taxes on Foreign Earnings

/PRNewswire-USNewswire/ -- The quest for cash to jumpstart the ailing U.S. economy could be alleviated if congress would revisit the 2004 successful economic stimulus measure that enabled U.S. businesses to invest $360 billion of foreign earnings at a temporary, reduced tax rate of 5.25%. In a new study commissioned by the American Council for Capital Formation (ACCF), renowned economist Dr. Allen Sinai of Decision Economics, Inc. analyzed the benefits that would occur based on an estimated $545 billion of repatriations, similar to the 2004 American Jobs Creation Act (AJCA). Sinai concludes that the U.S. economy would see a substantial boost in investment in plants and equipment and R&D, leading to higher U.S. GDP and job generation. He also projects nearly $140 billion in tax revenue over five years for the U.S. Treasury - money it would not otherwise receive.

"Unlike many of the stimulus proposals that bear a high price tag, this is a virtual free lunch that congress, the new administration and taxpayers can easily digest," said ACCF President and CEO Mark Bloomfield. "This temporary tax reduction can provide a lift to the U.S. business sector, significantly improve the financial position of nonfinancial corporations, and help relieve the tight credit and liquidity restraint for a number of companies."

Sinai's quantitative study concludes that temporarily reinstating an 85% dividends-received-deduction for repatriated foreign subsidiary earnings would lead to the following economic benefits:

-- Increased U.S. GDP, peaking at an additional $110 billion in 2010
-- Reduction in outstanding debt, which would improve credit availability
-- An average annual increase of $56 billion in new investment over the
next 5 years
-- Increased U.S. R&D spending by approximately $7 billion per year over
the next five years
-- Job generation within the U.S. economy peaking at 614,000 in 2011
-- Nearly $140 billion in tax revenue over five years from initial cash
investment and residual economic activity


ACCF also pointed to a survey of U.S. companies that utilized the 2004 AJCA and found, on average, that 25% of the funds repatriated were used for U.S. capital investment, 23% for hiring and training of U.S. employees, 15% for U.S.-based R&D, and 13% for U.S. debt reduction. Another survey indicated repatriating companies increased their total investments in the United States by over $230 billion compared to prior years.

"This temporary tax reduction would provide much needed cash flow for capital spending, R&D, strengthening corporate balance sheets, new jobs and produce gains for the overall economy," said ACCF Senior Vice President and Chief Economist Margo Thorning. "This is a true win-win alternative to placing further strains on the federal budget and Federal Reserve."

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Dose of Reality for Voters Expectations of Change? Dems Realize Fix is Not Easy After All

Democrats Try to Lower Expectations

By Naftail Bendavid

Even as they depict a massive stimulus package as indispensable to turning the economy around, U.S. Democratic leaders are aggressively lowering expectations that the package will yield dramatic accomplishments quickly..... More

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