- Compensatory aid to states,
- Aid for infrastructure repair and
- A little somethin’, somethin’ for the people.
The analyst projected that midyear cuts would have to be made because revenue in the current fiscal year will fall $3.7 billion below the $88.4 billion the governor and state lawmakers had desired.
The cuts to be implemented after the first of the year include up to $100 million each to the University of California, California State University, developmental services and in-home support for seniors and the disabled. Community college fees would increase $10 per unit, and reductions would be made for child care assistance, library grants and prisons, among other programs.
Because revenue is projected to fall short by more than $2 billion, the state could cut public school funding by up to $1.4 billion, though that amount will have to be determined by Brown's finance director. Besides laying off school staff, cutting expenses and dipping into reserves, the state could allow school districts to reduce the school year by up to seven days, from 175 to 168. California had 180 school days before the recession hit.
California's unemployment rate – under 5 percent as recently as 2006 – has remained above 11 percent for more than two years.... It projects California's jobless rate will remain above 10 percent through the middle of 2014 and above 8 percent through 2017.
Our nation's infrastructure is in tatters. The American Society of Civil Engineers has identified $2.2 trillion worth of repairs needed on bridges, roads, dams, schools and water and sewage systems. And that's just overdue maintenance, never mind addition or replacement.
Be it stimulus to the good, or deficit to the ill, the case for undertaking these projects immediately is compelling. Postponement is dangerous and expensive. Falling bridges, crumbling roads, bursting dams, moldy schools, contaminated water and leaking sewage are on no one's agenda for cutting government costs or increasing government benefits.
And to delay infrastructure expenditure is to inflate it. For example, take a badly worn stretch of Interstate 80 in Nevada. The state's Department of Transportation says fixing it today would cost $6 million, but waiting two years would cause the roadbed to be so degraded by traffic and weather that the price would rise fivefold, to $30 million.
That's probably an underestimate. Many construction workers are currently unemployed and equipment is idle. Two years from now, putting them to work on I-80 will mean bidding them away from other jobs. Furthermore, construction materials are cheap at the moment and interest rates are at record lows.
Another example is a pair of bottlenecks in the Northeast rail corridor. Low clearances block flatcars from carrying double-decker shipping containers. The containers go by truck instead, mostly on I-95, now bumper-to-bumper day and night. Other trucks use I-81, which is also congested and adds 200-some miles to the trip. According to a study commissioned by the I-95 Corridor Coalition, the bottlenecks could be eliminated for a cost equal to half the resulting multibillion-dollar savings. And those savings don't include reductions in noise, air pollution and the number of furious drivers with beet-red faces stuck for hours in traffic.
The American Society of Civil Engineers may be exaggerating some (though their study was done in 2009, so their numbers may be more realistic now). But it looks pretty likely that we could spend half our proposed stimulus -- $500 billion -- on needed programs which would be more expensive to undertake when the economy recovers.
|The I-35W Bridge in Minnesota, which collapsed in 2007.|
That leaves $300 billion left over. And this is where the helicopter drop comes in.
Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.
Tax rebates created by the law were paid to individual U.S. taxpayers during 2008. Most taxpayers below the income limit received a rebate of at least $300 per person ($600 for married couples filing jointly). Eligible taxpayers received, along with their individual payment, $300 per dependent child under the age of 17. The payment was equal to the payer's net income tax liability, but could not exceed $600 (for a single person) or $1200 (married couple filing jointly).
Those with no net tax liability were still eligible to receive a rebate, provided they met minimum qualifying income of $3,000 per year. Rebates were phased out for taxpayers with adjusted gross incomes greater than $75,000 ($150,000 for couples filing jointly) in 2007. For taxpayers with incomes greater than $75,000, rebates were reduced at a rate of 5% of the income above this limit.
And the cost of the bill was $152 billion. So we can (basically) double the payouts for all of the recipients. Single filers could get up to $1200, and married couples could see $2400. Not a bad chunk of change.
If you're middle or lower class, you may take that money and use it to catch up on your mortgage. That’s not a bad thing, as it would help stabilize housing prices as well as increase cash flows to mortgage holders, which tend to be things like pension plans, mutual funds and financial institutions. It would also reduce strain on Fannie and Freddie, as more and more of their mortgage-backed bonds were being paid off. (We own Fannie and Freddie, so we've got skin in this game.)
Finally, if you're upper class, you're probably just going to save this money. That, bluntly, doesn't help the economy much at all -- see the multiplier chart above -- but not every plan is perfect. And the payout to the upper class would start diminishing if you made more than $75,000 single/$150,000 married couple. So the bulk of this stimulus will be going to people who aren't going to hold onto it.
So -- there you go. A simple, three-step stimulus plan with something for everybody. Everybody (or almost everybody) gets a little ching-ching, everybody gets to enjoy social services restored to about what they used to be, and everybody gets to drive over bridges which don't collapse.
All for the low, low (real interest rate) cost of $7.5 billion per year.
Edited for clarity.