There has been a cascade of terrible economic news since President Barack Obama’s inauguration. To respond to the growing economic peril, the president and congressional leaders crafted the American Recovery and Reinvestment Act, H.R. 1, an $819 billion package of spending measures and tax cuts to create jobs. The act passed the House of Representatives on January 28 by a 244-188 vote. Only one day after President Obama traveled to Capitol Hill to offer compromise and seek Republican backing, the recovery plan was opposed by 177 Republicans (one was absent) and 11 Democrats.
Of the 188 representatives who voted against the Recovery Act, 151 were conservatives—legislators who voted with the American Conservative Union two-thirds of the time or more. Although one may disagree with legislators who oppose all large spending measures, at least those that do have a logical consistency. Yet 59 of these conservatives (more than one third) voted for the $750 billion Emergency Economic Stabilization Act of 2008 (see chart). Of these, no less than 50 also voted against the Auto Industry Financing and Restructuring Act, the $14 billion in bridge loans sought by the three Detroit auto companies.
The upshot: Fifty House conservatives voted to bail out Wall Street but opposed efforts to keep auto workers employed, and they were against Recovery and Investment Act spending increases and tax cuts designed to stave off the coming tidal wave of unemployment.
These conservatives point to a variety of reasons why they supported bailing out Wall Street firms just a few months ago but then decided not to help workers on Main Street through a severe recession Their excuses don’t hold much water.
First of all, conservatives protested that the House majority leadership drafted the bill without consulting them. The record suggests otherwise. The final version had more tax cuts than the initial proposal—$275 billion in all—which was about one-third of the total package. These cuts included some business tax breaks unpopular with progressives. The Los Angeles Times reported that, “Obama initially asked that 40 percent of the bill’s price tag be allotted to tax cuts, a portion large enough that pleased many Republicans and angered some Democrats. But when the bill failed to win over many Republicans, Obama settled for allotting one-third of the package to tax cuts.”
Next, conservatives used a flawed, incomplete analysis from the Congressional Budget Office to claim that the recovery package would create fewer jobs than advertised because a large portion of the funds could not be spent until 2011 or later. This assertion was debunked by Office of Management and Budget Director Peter Orszag, whose “analysis indicates that at least 75 percent of the overall package (including its tax component and the other spending provisions that were not analyzed by the Congressional Budget Office) will be spent over the next year and a half.” CBO later issued a more complete assessment that estimates that H.R. 1 will have a net impact on the deficit over 10 years of $816 billion. Of that total, $700 billion, or 85 percent, will be spent by the end of fiscal 2011.
Their next tactic was to complain that several specific spending items were wasteful and would not quickly create jobs. In response to these concerns, President Obama insisted upon some last-minute changes to address them. These included stripping Medicaid coverage of family planning services from the bill even though this program would have eventually saved the federal government $200 million. The president also offered to adjust the alternative minimum tax, a long-time conservative goal.
Despite these accommodations, conservatives maintained that the recovery package was too big and wouldn’t create enough jobs. House Minority Leader John Boehner (R-OH) dismissed the bill as partisan legislation driven by “old liberal spending priorities,” claiming that “the Democratic bill won’t stimulate anything but more government and more debt.”
The conservative alternative was a bill focused entirely on tax reductions. They wanted to continue the conservative economic policies pursued by President George W. Bush that focused almost exclusively on tax cuts, despite their dismal record in spurring economic growth. Mark Zandi, chief economist of Moody’s Economy.com and a top economic advisor to Sen. John McCain’s (R-AZ) presidential campaign, testified before the House last year that government spending would spur more economic growth than tax cuts.
Similarly, an economic analysis by members of the Obama transition team determined that “the jobs effects of temporary broad-based tax cuts would probably be considerably smaller…Large proportions of temporary tax cuts are saved, blunting their stimulatory impact on output and employment.” Meanwhile, President Obama’s economic recovery plan that became H.R. 1 would create 3,675,000 jobs by the end of 2010.
The unanimous rejection of H.R. 1 is reminiscent of conservatives’ rebuff of President Bill Clinton’s economic recovery plan. In August 1993, this plan passed the House of Representatives by a single vote, 218-216, with all 175 Republicans and 41 Democrats voting against it. This plan led to nearly eight years of steady economic growth and the creation of 23 million jobs.
Why did so many conservatives revert to fierce partisanship? After all, this past fall many small-government conservatives set aside their laissez-faire ideology to prevent a financial system meltdown after the U.S. housing crisis metastasized into a global credit crisis. Fifty-nine House conservatives voted for the Emergency Economic Stability Act because it was essential to avoid an imminent financial implosion that would have hurt people far away from Wall Street. The $750 billion Troubled Asset Relief Program created by this law injected huge sums of money into banks that recklessly gambled on subprime mortgages and other risky investments. Some of the beneficiaries of TARP funds included:
- American International Group. Inc., which received $152.5 billion
- Citigroup Inc., which received $45 billion
- Bank of America, which received $45 billion
After the unprecedented infusion of federal support, these and other companies spent money as if they were flush with profits instead of taxpayer dollars. AIG executives spent nearly half a million dollars on an executive retreat at an exclusive spa. Citigroup ordered a $50 million private jet for its executives’ use, even though it already had two jets. The head of Merrill Lynch spent over $1 million to renovate his office during his company’s financial crisis. And Wall Street bankers in total gave themselves nearly $20 billion in bonuses for 2008 despite decisions that brought their firms to the brink of insolvency and ignited this economic tailspin.
Despite this outrageous spending by its beneficiaries, support for the $750 billion Emergency Economic Recovery Act was essential to prevent a much worse economic crash. Conservatives who supported it deserve recognition for putting the nation’s best interests ahead of their own aversion to government intervention in the market place.
But it is troubling that these same legislators clung to their conservative beliefs rather than support the Recovery Act that would create jobs for those middle- and low-income people who are caught in the undertow of this financial tidal wave. House Minority Leader Boehner, then-Minority Whip Roy Blunt (R-MO), current Minority Whip Eric Cantor (R-VA), and 56 of their colleagues who supported the Wall Street bailout all held fast to their conservative beliefs rather than create construction, manufacturing, and other jobs. What’s more, 50 of these conservatives also voted against helping the nation’s auto industry survive its sudden, sharp economic downturn.
The American Recovery and Reinvestment Act would help those on Main Street in need of work or trying to hang on to their jobs through increased government investments in health care, housing, infrastructure, and clean energy. The legislation would create millions of new jobs in the midst of the longest recession in nearly 30 years. Yet these pro-Wall Street legislators put their conservative ideology ahead of the interests of Main Street Americans. Hopefully, Senate conservatives will set ideology aside to support this critical recovery program when the Senate begins deliberations this week.
Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress Action Fund. Kalen Pruss is an intern with the energy team at CAPAF.
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Daniel J. Weiss