Very Stimulating

Barack Obama and his transition team are already doing the hard work of governing, despite the fact that they haven't even come close to staffing the next White House. Plans for a mammoth economic stimulus bill are proceeding apace, and Republicans are watching glumly from the sidelines. Given that the Democrats hold almost all of the cards--they can freeze the Republicans out of the process entirely and pass just about anything they want--how should Republicans play a weak hand?

As political strategist Patrick Ruffini has observed, the Democrats made a serious mistake in 2001 when they countered President Bush's $1.6 trillion tax-cut proposal with a $1 trillion tax-cut proposal. The Republicans simply shaved their proposal by $300 billion and peeled off enough Democratic votes to ram the legislation through. Imagine if the Democrats had taken a different tack, proposing a few Keynesian measures--extending unemployment benefits, rebating the payroll tax--but mainly calling for massive public investments in infrastructure, exactly what they're doing now. The argument would have been pretty straightforward: During the Clinton-Gore years, Democrats built up a budget surplus. Now Democrats want to invest that money in America's future and Republicans want to cut taxes today so someone else will have to raise them tomorrow. If nothing else, this approach would have presented a clear contrast, and it would have energized the liberal faithful.

In a similar vein, Republicans would be foolish to propose a somewhat smaller stimulus package that relies on the same mix of public works spending. Instead, they should make the case for a dramatic change. Lawrence Lindsey, the architect of the Bush tax cut, has recently called for halving the Social Security payroll tax in The Weekly Standard, a measure that would have an immediate impact on the pocketbooks of most Americans, particularly Americans of modest means. Once the recovery is under way, Lindsey proposes to replace the lost revenue with a greenhouse emissions tax, an idea that would likely prove controversial. But it is easy to imagine some other progressive consumption tax serving the same role. The brilliance of Lindsey's proposal lies in the fact it both plays to Republican strengths--it will lighten the tax burden--and it cuts against Republican weaknesses--the perception, not always wrong, that the party fights only for the rich.

But this isn't the only way the Republican minority can counter the Obama stimulus package. Right now, Democrats are proposing a massive increase in infrastructure spending. And liberals are right to argue that America's transportation system is a pathetic mess that badly needs upgrading. Yet should the money go to the kinds of white elephant high-speed rail projects that environmentalists and urbanites love or to roads used by the vast majority of commuters? As a longstanding train buff, I understand the affection for passenger rail. The trouble is that long-distance bus transportation makes far more economic and environmental sense. Rail works in very dense areas, but the United States has precious few of them at the moment. The best way to reduce our carbon impact is to de-carbonize electricity generation, not to build trains hardly anyone will ride, certainly not the working class and poor travelers who need the most help.

If we do invest in roads, however, we need to finance them over time. Should roads be paid for by all taxpayers or by the people who use them? Whereas governments used to raise revenues through gas taxes, increased fuel efficiency means that this source of revenue is fast drying up. Oregon is experimenting with a GPS-mileage tax that would actually charge on the basis of how much a driver drives. For those drivers who want an extra-fast commute, networks of HOT lanes, maintained by private firms, could offer new routes tunneled below dense city streets. Bus Rapid Transit systems would use these same routes for free, allowing workers who can't afford to drive fast and easy access to employment centers in other parts of town. Democrats will fight tooth and nail against large-scale private investment in infrastructure. Republicans can forcefully make the case for it.

President-elect Obama has announced that he intends to extend unemployment insurance benefits. As Berkeley economist Raj Chetty has found, this might actually help unemployed workers find better jobs. Rather than scramble to find any job, slightly more generous benefits apparently encourage a more deliberate search, and that means more tax revenues will be paid back over time. This begs the question: Instead of extending benefits, might it make more sense to offer small loans to job seekers? The Bush White House experimented with retraining vouchers designed to help unemployed workers find better jobs. This is an area that merits more attention from Republican wonks.

Overall, the Republican message should be that private initiative works better than public plans. Cut payroll taxes, encourage private investment in infrastructure, and give workers the resources they need to better themselves.