by Joel B. Pollak 22 Oct 2013
In 2009, at the height of debate about President Barack Obama's stimulus plan, conservative radio host Rush Limbaugh proposed a compromise in the pages of the Wall Street Journal that would have devoted half the stimulus to tax cuts. Now, a new working paper by the National Bureau of Economic Research (NBER) concludes that Limbaugh was right, at least in terms of that portion of the stimulus that was directed to state governments.
The paper, by Gerald Carlino and Robert P. Inman, finds that "ARRA [American Recovery and Reinvestment Act] assistance would have been 30 percent more effective in stimulating GDP growth had the share spent on government purchases and project aid been fully allocated to private sector tax relief and to matching aid to states for lower-income support." In other words: tax cuts and cash transfers would have been better.
The new research partly answers the challenge Limbaugh laid down in January 2009: let Obama devote 54% of the stimulus to "infrastructure and pork," in accord with his share of the 2008 vote, and let the remainder go towards corporate tax reductions and capital gains tax suspensions. "Then we compare." The "Obama-Limbaugh Stimulus Plan" was never passed, of course, but the NBER paper provides a comparison.
President Obama and the Democrats often claimed that the stimulus did provide tax cuts--but they were only typically available under restricted conditions, and constituted a smaller part of the total (about 28%, according to Politifact.com). On the state level, the stimulus was devoted to $318 billion in government transfers--about 40% of the total bill. If Obama had listened to Rush, the economy might have been in better shape.