UPDATED:
The Congressional Budget Office says President Obama’s giant economic recovery bill actually will end up hurting American workers’ paychecks in the long run.
Building on a report issued last week, CBO, Congress’s official scorekeeper, said the flood of spending will boost the economy in the short term and will create new jobs. But over 10 years, extra debt will “crowd out” private investment, leading to a lower Gross Domestic Product which would hurt workers’ wages.
“The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be less productive because the capital stock is smaller,” CBO said in a report issued Wednesday night, though it did not say how much damage would be done.
As for the economy as a whole, CBO said in the short-term it will be better off with spending, but over 10 years the economy would at best break even and could actually be two-tenths of a percent lower than if Congress did not act. Republicans, who have fought Mr. Obama’s stimulus plan, said numbers confirm their fears.
“This is what happens when one party negotiates behind closed doors — you end up with bad legislation,” said Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee, which writes tax laws. “What the Democrats are asking the American people to do is buy a $1.1 trillion dollar plane that barely gets off the ground before crashing. The ones left inside that wreckage will be the American worker and taxpayer.
Drew Hammill, spokesman for House Speaker Nancy Pelosi, California Democrat, blamed the bulk of the debt problems on President Bush and said they know they’ll need to take more action to produce good-paying jobs.
“We know the deficits created by the previous administration are going to continue to have an impact on the economy,” Mr. Hammill said. “We know that we can’t afford not to act with the legislation that has been finalized, and we know there’s going to have to be other pieces of legislation to address other economic concerns.
The White House did not comment on the report. Mr. Obama has predicted his plan could create or save up to 4 million jobs.
The CBO report said the new spending would create or save between 800,000 and 2.3 million jobs in 2009, and by 2010 would account for between 1.2 million and 3.6 million jobs.
CBO’s analysis takes an average of the $819 billion bill that passed the House and the $838 billion bill that passed the Senate, though the agency said any large spending proposal would have similar effects.
The compromise bill Democratic leaders said they agreed to Wednesday night totals $789 billion, with $514 billion in spending and $275 billion in tax breaks.
In last week’s analysis of the preliminary Senate bill, CBO had said it would reduce GDP by 2019 by between one-tenth and three-tenths of a percent. CBO said its new analysis is slightly less gloomy because of “refinements in our methodology.”
Democrats have pushed the bill as the only solution to stabilize the economy, and the CBO report bolsters Democrats’ claims that it will help in the near-term. In 2009 GDP will be between 1.4 percent and 3.8 percent better if Congress passes its bill, and, in 2010, GDP would be between 1.1 percent and 3.3 percent better.
CBO said a spending bill’s positive effects on GDP will disappear in five or six years, and the bill’s debt could then become a drag on the economy.
“To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital. In economic parlance, the debt would crowd out private investment,” CBO said.
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