The "Obama" stimulus package that today passed in the U.S. House of Representatives has a price tag of $789,000,000,000. Did I miss any zeroes? 789 billion with a b, almost a million million.
To the President's great credit, the bill is especially impressive for what it does not do. It does not contain the false promise of trade protectionism. As for what it does do, a major component is a cut to payroll taxes which will add roughly $13 to the paycheck of every working American. I and many others have called for that kind of policy, and I think it will help stimulate aggregate demand.
What's amazing is that much of the rest of the bill's stimulus does not actually enter the economy until 2010, 2011, 2012 ... you get the idea. Even if you believe in government expenditures as stimulus - and I do not - the timing problem is not solvable.
So guess what else 800 billion dollars could pay for? The total revenues from all payroll taxes in a single year, by eerie coincidence, equals just $800b (of course, that's in measly 2008 dollars). The bulk of that is $566 from the Social Security payroll tax (OASDI). There's another roughly $200b in revenues from the Medicare tax (HI). Plus the $43b in receipts from the unemployment insurance tax (the one that taxes people who create jobs).
Just in case there is a need for a stimulus 2.0, let's keep this in mind. The Congress could offer a 1-year payroll tax holiday, giving employers a 7.65% reduction in the cost of labor (a little bit more, actually), AND workers a 7.65% higher paycheck (for their first $100,000 in wages). You could argue the elasticities of labor supply and labor demand differ, so that the feedback would be weighted more toward paychecks or employer cost, but so what? It would be an immediate stimulus. It would go to working Americans. And it would sail through with bipartisan support.
But then, well, we would still have to fix the banking system. It's all funny money until that gets done.