"This should scare the living daylights out of investors--it's just more Keynesian poison," Stockman said. "Obama lectured us about the simple math, but the part of that he still doesn't get is that Uncle Sam is broke, and that we can't afford one more dime for his stimulus 6.0 plan."
Stockman said there is no multiplier effect in a "debt-saturated economy" like the current one. That is, the effect of a change in taxes will not be multiplied in other parts of the economy, say consumer spending.
"The money will go through the economy in a flash and leave nothing behind except a half-trillion dollars of more debt to our children," he said.
Stockman called the $175 billion payroll tax holiday for workers "the Big Fiscal Lie."
"Unfortunately, workers need to pay every dime of currently scheduled taxes to fund Social Security and the other big government programs their representatives keep supporting," he said. "You don't get extra pocket money for Happy Meals you shouldn't have and Under Armour you don't need just because someone is trying to save a job at 1600 Pennsylvania Avenue."
Phillip Swagel, former assistant secretary for economic policy at the Treasury Department from 2006 to 2009 and former chief of staff at the White House Council of Economic Advisers, said the President gave two speeches in one: economic proposals that could "modestly" boost the U.S. economy, followed by "a campaign stump speech." He called it "an unusual way to bring the country together."
"The proposals would be most helpful if they are connected to a credible fiscal adjustment over time," said Swagel, professor in international economic policy at the Maryland School of Public Policy. "So have some tax cuts along the lines of what President Obama proposed and at the same time set out a way to reform entitlement spending over time. That will be part three of the speech...only that we have to wait a week to find out. So this is an incomplete proposal."
However, Swagel said the tax cuts on wages and on investment would be helpful. Swagel said he is waiting to see further details, but he suspects there will be bipartisan support for some form of the proposals, so long as it is matched to a credible program to deal with the country's "long-term fiscal imbalance."
Peter Hooper, chief economist with Deutsche Bank Securities, said the proposed package costs about 50 percent more than was expected, including a number of measures that could be effective in creating jobs that would normally attract bipartisan support.
"At roughly 3 percent of GDP, if passed intact, it would fill a good deal of the over 5 percent of GDP fiscal drag currently built into fiscal policy for [the 2012 fiscal year]," he said.
However, according to Hooper, the initial reaction from key elements of the Republican side of the House suggests that chances of passage of the proposals intact are slim.
"We should get some of this, which will help, but probably not enough to make big difference to a weak economy," Hooper said.