If there is one thing President Bush is good at, it’s spending other people’s money. That’s why he saw Sen. Barack Obama’s (D-IL) $250 to individuals stimulus plan, saw the Democratic Congress’ $500 for individuals offer, and raised them both to $800 for individuals and $1,600 for families. Let’s hope the Democrats simply call instead of reraising.

As the Wall Street Journal reminds us this morning, all these $250, $500, and $800 checks have to come from somewhere, and that somewhere is “either by taxing or borrowing from someone else … We are thus supposed to believe it is ‘stimulating’ to take money from one pocket and hand it to another.” Also writing in WSJ former Ways and Means chair Bill Thomas and Alex Brill identify research showing that most rebates from 2001 were saved and not spent. The chances that Americans will save and not spend their government handouts this time are even greater, since the whole reason the economy is slowing is due to bad mortgages and credit card debt. Paying those debts down is savings and does nothing to ‘stimulate’ the economy.

Worse, Federal Reserve chairman Ben Bernanke broke his promise to remain neutral in the stimulus debate by rejecting the inclusion of pemranent tax cuts in any stimulus plan. The markets were so comforted by Bernanke’s testimony that they plunged 3 percent.

All is not yet lost. The president still has an opportunity to unilaterally spur real and permanent economic growth through a regulatory fix to the non-indexing of capital gains to inflation. A 1992 legal memorandum explains how the tax code gives the Treasury Department the authority to define “cost” to exclude the effect of inflation entirely when calculating capital gains. Such an approach would lower the tax assessed on the sale of stocks, homes, real property, and other capital assets. Such a move would immediately produce more short-term revenue to the Treasury as long-term gains were unlocked and stimulate investment.

Quick Hits:

  • Scientists have created the first cloned human embryo, using single skin cells taken from adults. Scientists grew the embryos in laboratory dishes to the stage fertility doctors consider ready for transfer to a woman’s woman: a degree of development never achieved before.
  • U.S. military figures show 75% of Baghdad’s neighborhoods are now secure, up 8% from a year ago. USA Today says the data “provide one of the clearest snapshots yet of how security has improved in Baghdad since roughly 30,000 additional American troops arrived in Iraq last year.”
  • Seven people were killed in a gun battle between kidnappers and Mexican police in Tijuana Thursday. Two of the alleged kidnappers are also police officers according to Mexican authorities.
  • Legal immigrants are facing “much longer” waits to receive visas and naturalization papers. Citizen and Immigration Services blamed the delays on a backlog of criminal background checks required by the F.B.I. The F.B.I has over 220 contract workers working on the 300,000 case backlog.