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Does The Strengthening Economy Still Need Congress?

Employment has been rising in recent months, but most economists say Congress should keep trying to boost consumer spending.
Mark Lennihan
Employment has been rising in recent months, but most economists say Congress should keep trying to boost consumer spending.

Congress on Friday approved legislation to continue a payroll tax holiday and extend benefits for the long-term unemployed.

The goal is to make sure Americans have enough spending money to keep the recovery from faltering. President Obama is expected to sign the legislation.

And most economists are applauding, saying Congress should pass the measure to stimulate growth, even though many indicators already are pointing up. Recent data show job creation is accelerating, retail sales are improving and even housing is perking up a bit. The stock market has been advancing sharply.

But all of it is fragile.

"If you withdrew the stimulus, consumer spending would be less," said Ann Owen, a professor at Hamilton College and a former economist at the Federal Reserve.

And this economy needs every possible penny of consumer spending because it remains so far from healthy, she said. "Consumer confidence is growing, but we're not there yet," she said. "There would be a real risk if you withdrew this stimulus."

Last year, Congress agreed to cut the payroll tax, which funds Social Security. The tax holiday expired with 2011, but was revived for the first two months of this year. The new legislation would extend the tax holiday through the end of the year.

That extension means a savings of about $20 a week to a worker earning $50,000 a year. That extra cash can help people keep up with the price of gasoline and groceries.

The legislation also will provide unemployed workers, who typically get about 26 weeks of jobless benefits, with up to 99 weeks of payments. Later this year, the cap would gradually decline to 73 weeks. The unemployment rate has dropped in recent months, but remains very high at 8.3 percent. More than 12 million people are still looking for work.

Robert Shapiro, an economist who served as the undersecretary of commerce for economic affairs during the Clinton administration, said that despite recent upticks in hiring, "employment continues to be significantly lower than it should be."

If the recovery were truly in gear, then both interest rates and inflation would be rising, said Shapiro, who now heads Sonecon LLC, an economic advisory firm.

"We will know through other signs when the economy is really building momentum," he said. "People will start to say: 'Hey, we can raise our prices.' But those signs aren't there yet."

If anything, Congress should be doing more to stimulate a level of growth that could fend off shocks, he said. "There are real and serious threats to the economy. We could have a spike in energy prices, which could get much worse in the event of a crisis around Iran. And there's the threat of a European meltdown," he said. "It would be very dangerous to leave the economy without help now."

But Kevin Hassett, an economist with the conservative American Enterprise Institute, a research group, said that if he were a lawmaker voting today, "I would not do this."

Hassett said temporary tax holidays and unemployment extensions just make people more dependent on Congress' whims and ultimately put the economy on less firm footing. Instead of tossing out short-term stimulus measures, "I would do a big fiscal reform," he said.

That would provide businesses, investors and workers with confidence about the future of taxes and deficits, he said. When Congress shifts its focus from long-term growth to annual fixes, "you can get into a cycle of dependency," he said.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

Marilyn Geewax
Marilyn Geewax is a contributor to NPR.