One candidate's short-term economic fix is a gimmick to another

McClatchy NewspapersSeptember 25, 2008 

WASHINGTON — The nation's capital is riveted by ongoing negotiations over a taxpayer-funded $700 billion rescue for Wall Street, but what about Main Street? What are the two major candidates for president offering to help ordinary Americans who are struggling keep their homes and pay their bills?

Republican John McCain and Democrat Barack Obama vary greatly in their broad philosophies for the economy, and they are equally far apart in what they would do in the short term to help keep Americans on their feet.

Obama proposes $50 billion in infrastructure funding and emergency assistance to state governments, and an immediate tax rebate of $500 for individuals, $1,000 for families.

Republican John McCain considers that a gimmick. He offers no giveaways, preferring to focus on his overall economic policies. He challenges his rival's view that state aid would get spent fast enough to help the people who most need it.

Of the two candidates, Obama offers the more aggressive approach to job creation.

"We're focused on the short-run problems facing the economy. John McCain has never had a stimulus plan. He has not had anything about job creation in the short run, nothing he could even claim," said Jason Furman, Obama's economic policy director. "I think the biggest difference is that Barack Obama is focused on short-run stimulus measures. That is something John McCain has ignored because he thinks you leave the economy alone."

Specifically, Obama would provide $25 billion to state and local governments for them to decide how best to use. Although it's not clear how Obama will pay for all his promises, including this one, his offer of relief to states could come at an important time, said James K. Galbraith, an economist at the University of Texas in Austin.

"Their property tax revenues are taking a hit, they are cutting back spending. It's absolutely essential," Galbraith said of assistance to states. "It needs to be understood as a more important piece of the fix."

Obama also proposes providing $25 billion to state governments for infrastructure public works projects _ such as roads and bridges _ that his economic team believes would create about 1 million jobs in short order.

"There is no history of that being successful," countered Douglas Holtz-Eakin, McCain's chief economic adviser. He suggested that transportation funds must flow through state and local bureaucracies that would prevent the relief from being immediate.

That's not a view shared by the Associated General Contractors of America, the trade association for construction firms.

"There are certainly some projects that could be started immediately," said Kenneth Simonson, chief economist for the group.

How many projects in the pipeline could benefit from short-term aid is disputed. The American Association of State Highway and Transportation Officials thinks there are more than 3,000 projects ready to go. But the Federal Highway Administration maintains that only about a quarter of infrastructure funds get spent in the first year, and the rest trickles out over five or six years.

What isn't in dispute is that construction jobs are in decline. Employment in heavy and civil engineering and construction fell by 52,000 jobs according to the latest labor statistics from August, Simonson said, and this will worsen if the economy sinks into recession.

"We think there are plenty of construction workers who could quickly be put back to work on highway and infrastructure projects," Simonson said.

McCain's economic advisers said that if Congress sent him a stimulus plan once he's president, he’d consider signing it.

McCain and Obama may have to take a stand on this soon. Senate Majority Leader Harry Reid, D-Nev., on Thursday unveiled a $56 billion stimulus plan that would extend unemployment benefits by seven weeks, something both candidates have been open to. It would also set aside $10 billion for infrastructure funding and $7.5 billion in loans to help automakers retool to make energy efficient cars.

McCain's philosophy, Holtz-Eakin said, amounts to getting the fundamentals right. By seeking to lower corporate and individual taxes, McCain would boost the economy and create sustainable jobs over time, he said.

"The reality is, good economic policy is to implement everything that you propose right away," said Holtz-Eakin, a former director of the Congressional Budget Office.

As for infrastructure spending, he said McCain's push to construct more nuclear power plants and to increase drilling for oil and natural gas would have the same effect as Obama's targeted infrastructure spending.

"If we were to get started on the nuclear power, that's jobs, that's thousands of jobs," said Holtz-Eakin. "If you were to expand drilling, there are jobs. While the oil might take a while to flow to the market, the jobs will start right away."

Obama's rebate plan, first rolled out as an energy rebate to help Americans pay their gasoline and electric bills, would cost in the neighborhood of $65 billion. It would be funded by imposing a windfall-profits tax on the oil industry. McCain has opposed such a tax, although his running mate, Gov. Sarah Palin, had such a tax in place in Alaska.

Economists frown on windfall-profits taxes, pointing to their failure following the energy crisis in the 1970s and '80s. The taxes encouraged oil companies to explore outside the U.S.

"I think he's going to discover you don't raise that much money, and it doesn't make that much difference that way . . . certainly in stimulating the economy," said Ed Yardeni, a veteran Wall Street analyst. He said that the tax might bump up oil prices and thus erode the windfall to consumers.

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