I've been opposed to Barack Obama's plans for a $775 billion "stimulus"
package for three main reasons:
First, the stated purpose of the stimulus is to encourage consumer
spending; that is to say, to do more of what got us into financial
trouble in the first place. We've been living large on money borrowed
chiefly from the Chinese. That gravy train has lurched to a halt. We
need to live within our means. That means saving money and paying down
debt the opposite of what the designers of the stimulus package want
us to do.
Second, because about 60 percent of the stimulus package is a grab bag
of spending on government construction projects, it cannot achieve the
stated goal of boosting the economy in the short term, because it takes
too long for the money to trickle in. Economist Bruce Bartlett
published in the New York Times in January of last year a chart which
indicated that in all eight post World War II recessions prior to this
one, the government stimulus didn't take effect until after the
Third, Mr. Obama proposes to spend money we don't have on projects of
dubious value. The projected budget deficit for his first year in
office is greater than the entire federal budget was just nine years
ago. The money Mr. Obama proposes to borrow will have to be paid back,
either through higher taxes or through devaluation of the currency
through inflation, which would devastate the savings of industrious
Americans, and discourage the foreign investment on which, alas, the
health of our economy now largely depends.
I'm not as hostile to public works projects as are many other
conservatives. They've been the most economically beneficial form of
government spending. Some like the Erie Canal and the hydroelectric
projects in the Hoover and FDR administrations were vital to our
nation's development. But the grab bag of spending on swimming pools
and museums and other projects state and local governments don't want to
spend their own money on is unlikely to provide lasting economic
About 40 percent of Mr. Obama's stimulus package would be tax cuts for
individuals and businesses. These actually could provide stimulus,
because the effects of tax cuts can be felt in the economy much faster
than spending on public works. And because these would reduce the
burdens on those who actually wealth in society, they'd be of greater
long term benefit to the economy. But much of what Mr. Obama is calling
a tax cut is camouflaged income redistribution. He would give income
tax rebates to people who pay no income tax.
I've nothing but praise for Mr. Obama's proposals to reduce taxes on
business. Companies would be permitted to write off losses faster, and
would be encouraged plow more money back into investment, and to make
new hires. Mr. Obama resisted offering breaks to companies which pay no
corporate tax. I wish he'd done that with individuals, too.
So what would I do instead?
For short term economic stimulus, how about a six month holiday from
paying payroll taxes? This would benefit every taxpayer, but those at
the lower end of the scale proportionately more. And because businesses
pay half the payroll tax, this would provide them with welcome relief.
The downside, of course, is this would hasten the impending bankruptcies
of Social Security and Medicare, but these are still some years away.
For the longer term, we should reduce permanently the corporate income
tax rate from 35 percent currently the second highest in the world
to, say, 25 percent, and reduce the tax on capital gains. These would
help businesses weather the recession, and encourage investment in them.
Corporations are whipping boys in political rhetoric. But it is they
which provide the jobs from which most of us obtain our livelihood, and
it is from the private sector that tax revenue comes.
If business is
sick, the economy can't be healthy. We've got to stop hacking away at
the golden goose.