How To Pass A Second Stimulus: Cut Corporate Taxes

With unemployment soaring at 10.2%, they're no longer just whispering in Washington about a second stimulus: it's beginning to look unavoidable. The problem, however, is that public perception about the first stimulus is extremely negative. As Derek noted earlier this month, the majority of Americans believe that canceling the remaining stimulus would actually create jobs. Americans are also increasingly worried about the ever-expanding deficit. Republicans will certainly use deficit growth and wasteful spending as the foci for their 2010 election campaigns. So how can Democrats get another bill passed?

I think it's key to remember that there are two kinds of stimulus: spending and tax cuts. The reality is that many Americans hate spending stimulus. If Democrats put together a stimulus consisting of corporate tax cuts to free up money for companies to begin hiring again -- or at least stop firing -- I highly doubt most Americans would be angry about it. Americans are so cynical about the first stimulus package because they don't trust politicians and bureaucrats to spend money effectively.

Of course, Republican resistance would also disappear if Democrats put together a business tax cut package. Republicans would be so excited that they'd suddenly have amnesia about their fear of growing deficits. To most Republicans, a tax cut induced deficit is a-okay. Just ask George W. Bush.

But Democrats almost certainly won't allow this to happen. Presenting such legislation would be politically awkward. When the first stimulus was being debated, Republicans argued for a much heavier portion of tax cuts. If Democrats created a second stimulus of this flavor, it would be like they were admitting that they were wrong.

Yet, Democrats are also potentially in trouble come November if they spend more money and still get few results. Republicans are already looking more appealing for their resistance to the original stimulus. Another largely ineffective spending bill might just fuel their fire.

Still, it would be nice to see Democrats put their pride aside and work with Republicans to produce a second stimulus package. If it works, they can take credit. If it fails, they can then just blame Republicans. Of course, if it does work, Republicans will make it hard for Democrats to take all the credit, but incumbents will still come off looking a lot better than they would if Congress did nothing or passed another ineffective spending bill.

All of these complexities should make for a really interesting battle once the second stimulus debate really heats up. Unfortunately, that won't happen until sometime next year, since Democrats are too obsessed with getting a health care bill passed before any other major legislation can happen, no matter how important.