What will $1 trillion in new debt stimulate?

Late last night, Congress passed a massive new “stimulus” spending bill. Now that they passed the bill, we can out what is in it. This 5,593 page monstrosity—which no one voting on had time to read read—blows up the deficit by nearly a trillion dollars, and offering a litany of pork barrel projects.   

When Obama was president, Republicans would have called a package like this “socialism”—and that wouldn’t have been too far from the truth. It represents a massive redistribution of wealth, in this case from future generations to the present, regardless of need, while undermining prosperity and economic growth.

There is $322 billion in business bailouts, $166 billion in direct checks, $120 billion in extra benefits to pay people to stay unemployed, and $82 billion to public schools that aren't reopening—all money borrowed from China and elsewhere that our kids will have to pay back.

Worst of all, this encourages governors like Tom Wolf to continue shutting down businesses, knowing that the federal government—i.e., taxpayers—will offer bailouts to allow them to escape the consequences of that action.

The $900 billion spending is all new debt and is on top of already-record high deficits. And Democrats have promised this is only a “down payment” for more bloated spending under Joe Biden.

While Donald Trump campaigned on eliminating the federal deficit in eight years, he’ll leave office having deficits at least triple what he started with, and a national debt exceeding $28 trillion. That’s around $225,000 per taxpayer!

Escalating federal debt crowds out other spending, as interest payments consume more and more of spending. More importantly, excessive government debt hurts workers and families—resulting in less investment in small businesses and homes; reduced opportunities for workers; and lower incomes for families.

Instead, the stimulus represents short-term thinking. But even that threatens America’s prosperity.

The legislation includes an extra $300 in weekly unemployment benefits—incentivizing people not to work. We know from recent experience that government providing enhanced unemployment benefits make it more difficult for employers to hire new workers and drives up unemployment—Casey Mulligan and Stephen Moore estimate three to four million fewer workers as a result. Now we are doubling down on that failed policy.

On top of unemployment funds, the government plans to send $600 checks to a large subset of taxpayers, no strings attached. It is easy to see why politicians love sending voters checks and taking credit for giving them “free money” (that they first took out of taxpayers’ wallets). But these sort of handouts don’t help those in need, nor do they stimulate the economy.

You can’t grow the economy by taking money from one group of people and giving it to another, any more than taking out a loan to pay your credit card. In fact, that’s largely what happened with the first round of checks. Contrary to predictions, after the first round of pandemic relief payments, personal savings increased, while consumption decreased. Those same pundits predicted consumption would drop in the autumn without another stimulus, but in fact, it increased.

The stimulus includes another round of the Paycheck Protection Program—despite evidence this program was costly and ineffective. According to an analysis by Pennsylvania’s Independent Fiscal Office, “new research finds that the program had a modest employment impact.”

The analysis points to three studies that estimate the cost per job retained somewhere between $109,000 and $380,000 per job!

So why do politicians think we need more PPP loans? Maybe because the program favors the politically connected—including political parties and members of Congress. Lobbying firms were major recipients of PPP loans, including several lobbyists and political consultants here in Pennsylvania.

What small businesses truly need is protection from excessive lawsuits—something state lawmakers tried to deliver but Gov. Wolf vetoed. But instead of commonsense reform to allow businesses to survive on their own, Republicans caved on this request pretty easily.

Lastly, the new stimulus includes more money for public schools that don’t need it—having already received additional funding through the CARES Act and additional state funding. In fact, school districts are getting increased funding even as they remain closed and have seen enrollments decline.

Most maddening is that the legislation forbids states from using funds to help parents—explicitly banning support for scholarships, education savings accounts, or help with tuition costs. This prohibition flies in the face of what parents want and what students need.

Like past crises, the pandemic has been used as an excuse to increase the size and role of the government. It far past time we recognize how these big government spending binges undermine our prosperity and cause suffering.