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Hey GOP — Obama won

2/3/2009, 6:38 a.m.

Hey GOP — Obama won

America is in the midst of a colossal economic collapse. Everyone recognizes this, but there is no official consensus on a recovery plan. President Barack Obama’s proposed $819 billion stimulus package passed the U.S. House of Representatives last week, but it did not have any support at all from Republicans.

A review of some of the major elements of Obama’s plan indicates that his first priority is to provide support for the victims of the recession. About 30 percent of the package is set aside for unemployment benefits, aid to the states and food stamps. Of that, the largest component is $87 billion for state Medicaid programs. The objective is to provide enough support to allow states to avoid cuts in services and unemployment of state workers.

The stimulus package includes $40 billion to subsidize health care for the unemployed and $145 billion in tax credits for low- and middle-income workers, as well as a temporary expansion of the Earned Income Tax Credit for the working poor. Some benefits would be available for those who do not earn enough to pay taxes.

Republicans have attacked the plan because only $62 billion, or about 7.5 percent of the total package, is dedicated to infrastructure spending for mass transit, roads and schools, and because it contains little funding for other projects that will directly create jobs. But their major objections were philosophical: Republicans were concerned that extensive government support of health benefits would lead to socialized medicine, and they viewed payments to the working poor (other than tax cuts) as a socialistic redistribution of wealth.

The largest element of gross domestic product, the primary measure of the health of the U.S. economy, is consumer spending. With growing unemployment and rising public concern about the future, consumption declines. Obama’s proposal would immediately result in paychecks to workers or benefits to the unemployed. It will be 18 months or more before infrastructure dollars hit the street.

Obama also understands another important issue in reviving an economic recession — the attitude of the people. Americans have to be optimistic about the future. Middle-class Americans have been losing ground. During the economic expansion that began in 2001, the rich became richer while median household income failed to reach a new inflation-adjusted record for the first time.

On the other hand, the income of the 400 wealthiest Americans grew 23 percent from 2005 to 2006, up from $214 million to $263 million. Nonetheless, because of tax advantages available to the very rich, their tax rate is less than that of working-class Americans. It is no wonder that many people have begun to feel that the economic system is inequitable.

The Republican approach is tax cuts, tax cuts, tax cuts. However, there is no reason to believe that more income of the wealthy will find its way to the shopping mall. More than likely, astute investors will find a way to preserve their cash until the economy improves.

Business cycles of growth and contraction naturally occur, but a collapse of this magnitude is the result of failures in the economic system. Expect those committed to the culture of Wall Street to resist Obama’s proposals. It is time to realize that solutions require creative thinking, not slavish adherence to economic philosophies that may no longer be relevant.