by Deb Cupples | Via Memeorandum, the Wall Street Journal reports:
"Lawmakers in the House and Senate will now gather to iron out the considerable differences...."
If enough House Democrats are predisposed to pass the Senate's bill, then compromises won't be necessary because there aren't enough Republicans in the House to kill it.
Still, I have two concerns about the stimulus package given what I've read about it so far:
1) Tax breaks for big corporations and wealthy individuals would do little to stimulate our economy;
2) Public works projects handed to private contractors may create waste, fraud and abuse.
Tax Breaks
Corporate tax breaks could, in theory, free up money for companies to save or create jobs -- but whether jobs are created depends on how executives running the companies choose to spend the money saved via tax breaks.
President Bush (and the Republican-controlled Congress) handed out big corporate tax breaks some years back, claiming that the tax cuts would result in American job creation.
That didn't seem to happen on a large scale. Instead, the executives running many big companies --
1) sent jobs overseas, where labor is dirt cheap, which increased the companies' bottom line;
2) enjoyed an even bigger bottom line via tax breaks; and
3) Used the bigger bottom lines to justify huge personal bonuses.
Tax breaks for already-wealthy folks don't seem to be the best way to stimulate consumer spending, because --
1) people with tons of money are a small part of America's roughly 300 million residents ; and
2) people with tons of money tend to already have all the consumer goods they need (e.g., computers, cars, clothing, TVs...).
In other words, making already-wealthy folks even wealthier would not stimulate overall consumer spending much.
Meanwhile, stimulating consumer spending is what many economists think we need right now. Why? Because --
- Less $ for consumers means less $ for businesses - Less $ for businesses means more job cuts - More job cuts mean even less $ for consumers - Which means even less $ for businesses - Which means even more job cuts and so on...
Over the last decade or so, many of America's wealthy folks have become even wealthier -- while median household income for middle-class Americans largely stalled in the $40,000 range.
If making corporations and wealthy individuals wealthier really had stimulated consumer spending and job creation, then our nation would not have lost 3.6 million jobs just since December 2007.
Private Contractors
Every tax dollar spent on contractor waste, fraud, or profits is one less dollar for things like paving roads or paying good salaries to workers so that they can contribute to consumer spending.
Consider defense contracting, for example. A May 2007 GAO report addresses whether the Department of Defense (DoD) contractors cost the taxpayers more than if government employees were providing the same services. DoD officials claimed that contractors were a better deal, but the GAO found that claim questionable because:
1) the DoD did not have a good system for tracking and assessing costs, and
2) the DoD's data "included inaccurate and unsupported costs."
It's not just defense contractors. A December 2007 House-Senate conference report addressing intelligence contracting states that government employees cost, on average, $126,500 a year -- while contractors' employees cost about $250,000.
Translation: we taxpayers paid almost twice as much for private intelligence contractors as we would pay government employees to perform the same services.
It's not just intelligence contractors. FEMA contractors, for example, were engaged in all sorts of waste or fraud during the aftermath of Hurricane Katrina.
In August 2006, the House Oversight Committee released a report which states that 19 contracts worth almost $9 billion were "plagued by waste, fraud, abuse or mismanagement."
For example, FEMA paid $3 million for 4,000 "camp beds" that were never used. That's $750 per "camp bed" -- almost as much as I paid for my Beauty Rest pillow top with memory foam (House Report, p 4). The camp-bed purchases did not benefit hurricane victims, but they certainly benefited the private contractors who sold (and marked up) those camp beds.
Most unsettling were odd purchases, including the following examples (House Report, p6):
* $8,000 for 63-inch plasma TV
* $63,000 for 20,000 pairs of dog booties
* $?? for 20 boats at twice retail price, only 8 of which are in FEMA's records.
One problem was that FEMA (and the Army Corp of Engineers) kept handing out contracts without competitive bids.
In other words, the lucky contractors got to name their prices. This was expected in the first month or so after Hurricane Katrina, because timing was so crucial. However, by June 2006 (9 months after Katrina), about 70% of the contracting dollars went to contractors without competitive bidding (House Report, pp. 2-3).
Another problem involved multiple layers of subcontractors (i.e., expensive middle men). Throughout the chain, primary contractors marked up the costs of the subcontractors that actually did the work (House Report, p 5). That's what defense contractors have been doing in Iraq.
One example of inflated costs regarding Hurricane Katrina: we taxpayers spent about $2,500 per job for roof work that should have cost less than $300 per job. It all adds up.
Contractor overcharges, waste and fraud can be costly. For example, Halliburton subsidiary KBR hired a subcontractor to provide meals for troops in Kuwait: auditors found that dealing directly with the subcontractor could save us taxpayers $31 million a year. Translation: just for playing middleman, KBR added millions to the taxpayers' tab.
A Pentagon report found that Halliburton/KBR tried to overcharge us taxpayers $108 million for importing fuel into Iraq. KBR asked the Pentagon to redact the report before publicizing it--and the Pentagon did. See the redacted report (to see what was redacted, click on the blackened text).
It's not just contractors that do questionable things. In January 2007, Robert Stein -- the Comptroller and Funding Officer of Iraq's Coalition Provisional Authority (CPA) -- earned a 9-year prison sentence after accepting bribes from a contractor in exchange for rigging contract bids.
Stein had been convicted of credit-card fraud in the 1990s, leading onlookers to wonder why the U.S. government hired Stein to handle Iraq-rebuilding funds. In February 2007, five other defendants were indicted on related charges, three of them former U.S. military officers.
In October 2006, a DoD employee was indicted after allegedly accepting bribes from an Iraqi contractor then getting that contractor three Army contracts.
I could go on and on with examples (and on and on and on), but you likely already get my two main points:
2) Govt. officials must adequately monitor contractors to reduce waste and fraud.
If the Obama Administration (yes, the executive branch deals with contractors) does a good job at those two tasks, then public works projects funded by the economic stimulus bill might pay off.
If the Obama Administration hurriedly throws money at contractors, then it won't be much different from the first Wall Street bailout: a huge funneling of tax dollars into a relative few people's personal pockets.
Other Buck Naked Politics Posts:
* Despite Huge Job Losses, Republicans Want Tax Cuts for Wealthy
* Economists Want Stimulus Soon, "Free Marketers" Flip Flop Again
* Wealthiest Got Wealthier and Paid Lower Tax Rates
* Inspector Blocked Investigations of Contractor Fraud and Waste?
* Defense Dept. Rewarding Bad Contractor Performance?
* Contractors: Driving up War's Costs?
* Contractors: Driving up Healthcare Costs
* New Orleans: Still Suffereing After 2 Years and Billions of Dollars
The conservative myth that all private spending is wise and productive and public spending foolish and wasteful is what has gotten us into the economic mess we find ourselves in today. It's the decline in national investments that has led us to a place where from 1989 to 2006, the highest-earning 10 percent of U.S. households collected over 90 percent of the nation’s income gains. Today the top 1 percent of American families receives 23 percent of all personal income, up from just 10 percent in 1979. Corporate executives earn 275 times as much as average workers, compared with 27 times in 1973 (these facts are taken from the downloadable book Thinking Big, which I highly recommend - the book is a primer on public policy from the Progressive Ideas Network). If tax cuts could save us, they would have already done so. Time for some stimulus AND spending.
Posted by: Lateralgal | February 13, 2009 at 07:39 PM