The Politics Of The Economic Recovery Act

Something shifted in the political dialogue last week when the House version of the American Recovery and Reinvestment Act failed to pick up a single Republican vote.

Liberal pundits and bloggers expressed outrage and worried how the GOP could be so stupid as to reject the $819-billion boost to the economy. Conservative pundits and bloggers expressed shock and wondered what gave their representatives in Congress the backbone to reject the goodies-packed recovery bill. Both groups argued that the end result was good news for their side.

Before going too deep in the partisan muck, it’s worth noting that last week’s vote in the House was somewhat of a rarity: Congress actually voted the way that their constituents wanted.

This was not a case like the financial bailout last fall, the automakers bailout in December or the immigration issue the year before where official Washington ignored the voters.

Because the political parties have carefully drawn the boundaries of the congressional districts over the years, Republicans generally represent safe Republican districts, and Republican voters dislike the spending portions of the proposed legislation. Most Democrats represent safe Democratic districts, and Democratic voters like the mix of tax cuts and increased government spending. Some Democrats, carried into office by Obama, are from more competitive districts, where voters are undecided about the economic recovery act, but they generally like the president and are willing to give him the benefit of the doubt.

So we can all celebrate—in a bipartisan or nonpartisan manner—that members of Congress actually acted as representatives of their voters this time.

The political calculations are not nearly as clear cut as some activists want to believe. In these difficult economic times, with consumer confidence continuing to decline, voters are looking for something to be done. The question is what.

It’s important to remember that, despite serious short-term concerns, most Americans are solidly optimistic about the economy’s eventual recovery. Few expect things to turn around in a year, but most expect housing prices and other economic indicators to move back up over the next five years.

Voters also have enormous distrust of both politicians and corporate leaders. One telling statistic that highlights this lack of confidence is that 74% of Americans believe alleged financial swindler Bernie Madoff should spend the rest of his life in jail. But 84% believe he’s likely to cut a deal to avoid that fate. Situations like this cry out for more accountability, and there’s no doubt regulations on businesses and the market in general will increase over the next several years.

Voters also make it clear that tax cuts are needed in a time like this.

Democrats say the tax cuts in the economic recovery plan are evidence of their outreach to Republicans. The problem with that logic is that President Obama understood the importance of tax cuts during his successful campaign for the White House. That’s one reason the Democratic presidential candidate promised to cut taxes for 95% of all Americans. The latest polling data confirms that tax cuts remain the most popular part of the economic recovery plan. Fifty-seven percent (57%) of voters nationwide say tax cuts generally help the economy, and only 17% disagree.

Forty-three percent (43%) of Americans would support an economic recovery plan that included only tax cuts and no new government spending. Just 15% would support a plan with only new government spending and no tax cuts.

So the inclusion of tax cuts are both a way for the president to honor his campaign pledge and a bipartisan solution that Americans naturally view as part of an economic recovery plan.

The more challenging political calculus deals with the spending side of the equation. Americans are always reluctant to see an increase in government spending. During Election 2008, voters consistently viewed cutting government spending as good for the economy.

But since last September, worries about government doing too much have fallen from 63% to the mid-40s. The concern that government will do too little has increased from 25% then to also reach the mid-40s in January. The latest numbers, from this past week, show that 46% are concerned the government will do too much and 42% are worried it won’t do enough.

In this environment, some short-term spending increases will certainly draw strong popular support. This would include spending to spur economic growth - and to help those who are struggling right now.

Given this reality, the challenge for both Republicans and Democrats is to define which spending in the economic recovery plan is really about economic stimulus and which is just politicians spending other people’s money.

If Republicans succeed in defining the spending as little more than an old-fashioned Democratic wish-list, it will be much harder for Democrats to enact other big spending programs over the next few years. If the economy fails to recover, the GOP also will find itself well-positioned to capitalize at election time.

On the other hand, if Democrats succeed in convincing people the spending really is focused on jump-starting the economy, they could reap lasting political benefits. If the economy recovers quickly, they will have a foundation to challenge the public’s underlying belief that government growth is bad for the economy.