Economic Stimulus
And the Helicopter Test

THIS WOULD BE a good moment for Congress to do what it says it wants to: pass an economic stimulus bill that actually stimulates the economy.

For a few weeks this fall, it looked as if it might. Leaders agreed to disregard evidence that spending and tax cuts aimed at resisting recession usually arrive after a recession ends and often are motivated more by back-scratching politics than economic logic. Eight years ago, Congress rejected President Clinton's attempt to stimulate what looked to be a sluggish economy. With hindsight, that was wise; it wasn't needed.

This time, there were encouraging signs that Congress might settle on a well-reasoned set of principles for a stimulus. Republican and Democratic leaders of the budget committees, for instance, called on Congress to act "deliberately but with dispatch, aiming for passage within three to four weeks" on temporary measures that would "achieve the greatest possible stimulus effect per dollar spent" and be felt "within six months."

That was six weeks ago. Congress has done nothing but dither since, a reminder of why so many politicians and economists preferred to leave recession-fighting to the Federal Reserve. Soon it will be too late for Congress to limit the damage done by a recession or insure against a deeper-than-forecast downturn. Perhaps each party should be given leeway to design $50 billion of a $100 billion stimulus package on the sole condition that it identify its portion.

ECONOMIC TEXTBOOKS, cited selectively in this debate, offer a few pointers. Temporary tax cuts don't do as much to induce consumer spending as permanent tax cuts; people are more likely to save a temporary tax cut or pay off debts. But there is one exception: People who spend every dollar they take in probably will spend every extra dollar the government offers.

For businesses, the textbook is different. A well-crafted temporary tax incentive might spur some firms to speed up plans to buy machinery, computers or software, just as a 20%-off sale might lure a man to buy a spring suit in November instead of waiting until April. No business ever complained about permanent tax cuts, but they offer no incentive to buy now rather than later, the point of any stimulus. Republicans and Democrats would offer temporary depreciation sweeteners with this textbook chapter in mind.

Not much else under discussion resembles the textbooks.

Members of Congress genuflect to Federal Reserve Chairman Alan Greenspan, but reject his advice unless it suits their prejudices. He said the economy would benefit over time from lower corporate and capital-gains tax rates, but told them to leave such measures out of any stimulus. "I would scarcely consider them as short-term stimulus because ... there's very little evidence to suggest you get a bang-for-the-buck type of impact," he testified on Oct. 17. "Be clear on what it is we're endeavoring to do."

SO HERE'S A SIMPLE TEST for any proposal: Would it do at least as much to stimulate the economy in the next six months as asking the Marines to fly helicopters over shopping malls and throw out $20 bills?

Cut the capital-gains tax? Backers used to argue that would increase savings not spending. Cut taxes that big companies paid on past profits, no matter what their current capital spending plans? It'll make executives happy, but give them little cause to spend more now. Subsidize health insurance for the unemployed? It's a persistent problem, but the solution won't boost demand soon. Buy more bison meat and blueberries for school lunches? Enough said. Whatever their other merits, none of those proposals yields much of Mr. Greenspan's "bang-for-the-buck type of impact."

IT HAS BEEN NINE WEEKS since Sept. 11, the day that ended serious debate about whether the U.S. was in recession. Since then, the Republican-controlled House has passed a package of tax cuts that can't get the 60 votes needed to move through the Senate. The Senate Finance Committee has approved tax cuts and spending increases that can't pull 60 votes either. Neither can the tax-cut plan that President Bush offered.

So the politicians soon must decide whether to scratch the stimulus idea, and hope the economy suffers no further shocks and recovers on its own. Or they have to find an alternative.

While the floor debate drones on, there's cloakroom talk of abandoning complex tax cuts and instead declaring a monthlong holiday in the Social Security payroll tax, the 12.4% levy on annual wages that is split evenly between employee and employer.

It's too late to do this for December. That was particularly attractive because it would have caught Christmas shoppers. And it would have directed all $40 billion to workers most likely to spend it, the ones who don't make enough to hit the $80,400 threshold above which wages aren't subject to the tax. Now there's new talk of trying this in January.

At least that would pass the helicopter test.

-- David Wessel

Write to David Wessel at capital@wsj.com