Weekly Wrap: Calls Increase to Extend Economic Stimulus to Help States

Reprinted with permission of Stateline.org

Talk of another federal economic stimulus package is gaining momentum largely because federal officials are beginning to realize that state governments will be worse off next year compared to the first two years of the recession.

Just don't call it stimulus for now. The Obama administration and congressional Democrats are contemplating ways to extend additional federal aid to safety net programs such as unemployment and food stamp benefits, according to the New York Times. Obama aides told the newspaper such an action would be an expansion of the existing $787 billion stimulus, not a new job-creating program.

Federal officials say if the unemployment rate, currently 9.8 percent, keeps rising to 10 percent or higher, states could need help paying for additional jobless benefits and Medicaid, the federal-state program for low-income people. State officials say they already cut spending deeply and raised taxes and fees this year to balance budgets, even with federal stimulus aid. They will not have as much stimulus aid in 2010 as they did this year -- unless Congress and Obama send them more.

Proposing another stimulus is risky because polls show many Americans are nervous about adding to the $1.3 trillion federal budget deficit. It would be the third stimulus in three years, counting President Bush's tax rebate in 2008. This is why Obama aides are downplaying another stimulus. No matter what they call it, extending aid to safety net programs stimulates the economy because that money gets spent quickly and entirely by the recipients.

Wall Street Journal columnist Gerald Seib made a case for a state-based stimulus. He said Democrats will be trying to create jobs in 2010 because the party in control usually loses a lot of seats in midterm elections when the jobless rate is high, as in the 1982 recession when the GOP lost 26 House seats.

"As Democrats ponder that scenario," Seib wrote Oct. 6, "here is one word they might want to keep in mind: states. Getting additional help to states in coming months might well be both the most efficient and the most politically feasible action Washington could take to avoid sinking deeper into the jobs hole."

New York Times columnist Paul Krugman, who urged a larger stimulus package in the first place, said the federal government still needs to fire up the economy through added stimulus spending. Forget about the deficit for now, he said. Additional stimulus spending will improve the economy in the long run, Krugman said.

"I know more stimulus is a hard sell politically," he wrote Oct. 2. "But it's urgently needed. The question shouldn't be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no."

Krugman makes the list of economists backing a third stimulus that is being kept by the Center for Economic and Policy Research, a liberal research organization inWashington, D.C..
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Louisiana Gov. Bobby Jindal turned Washington Post columnist Oct. 5 to pronounce the Democrats' health care reform effort dead and to offer 10 suggestions how Republicans can seize the issue. Jindal said Republicans have come off as too negative