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Jewish World Review Oct. 4, 2001/ 14 Tishrei, 5762

Larry Elder

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Consumer Reports

A wartime "stimulus" package -- tax more, or spend less?

http://www.jewishworldreview.com -- QUESTION: When does an economic "stimulus" package, well, stimulate the economy?

In prosecuting this war against terrorism, the president and Congress now face a softening economy. Even before the airlines received their $15 billion "emergency aid package," the nation's airlines already saw declining passenger loads and thinning profit margins. The stock market, even before Sept. 11, reached three-year lows in a market whose decline began 18 months earlier.

So what to do? Well, President George W. Bush urges $60-75 billion in tax cuts to stimulate the economy. Hold the phone.

During former President Bill Clinton's first year in office, he, too, proposed an "economic stimulus package" designed to spark economic activity. But Clinton's proposal increased government spending rather than reduced taxes. Clinton's program consisted of $16.3 billion in government programs, including money for summer jobs, the immunization of children, small business loans, expanded benefits for the long-term unemployed, additional money for meat inspections, funds for the upgrading of Amtrak, money for highway construction -- all to create 500,000 jobs in the coming year (1994).

Well, Congress stopped Clinton. He never passed his $16.3 billion "stimulus" package. Despite the bill's failure, the economy under President Clinton still grew and produced 20 million jobs. So, despite Clinton's failure to pass his "economic stimulus package," and despite a government tax grab at the highest level since World War II, the economy nevertheless continued to grow without having been "stimulated." Indeed, at the time of the Clinton bill defeat, Senator Barbara Boxer, D-Calif., said, "The Republicans think they won today, but what a hollow victory it is for them. We are in a jobs recession and we needed this bill to give employment a lift."

So, on the one hand, politicians label Clinton's proposed multibillion-dollar spending proposal a "stimulus package." On the other hand, a $60-75 billion package of tax cuts gets the exact same label -- a "stimulus package." Well, which is it? The answer comes down to this. Aside from defense and a few other government functions, who can better and more wisely spend money -- a government bureaucrat or a taxpayer who produced the revenue in the first place?

Former President Jack Kennedy believed that a lower tax burden means greater productivity. "It is a paradoxical truth," said Kennedy, "that tax rates are too high today and tax revenues are too low -- and the soundest way to raise revenues in the long run is to cut rates now. The experience of a number of European countries has borne this out. This country's own experience with tax reductions in 1954 has borne this out, and the reason is that only full employment can balance the budget -- and tax reduction can pave the way to full employment. The purpose of cutting taxes now is not to incur a budgetary deficit, but to achieve the more-prosperous expanding economy which will bring a budgetary surplus."

But what about taxpayer money for the poor? Surely, compassion dictates that government support the "less fortunate." Unfortunately, guaranteed public charity for the able-bodied and able-minded creates a dynamic that depresses the incentive of both the giver and the given. Following his tour of America resulting in his 1835 masterpiece, "Democracy in America," Alexis de Tocqueville toured England. He wanted to know why England, then the most affluent nation in the world, experienced the highest number of paupers. Tocqueville blamed the English welfare system.

In "Memoir on Pauperism," Tocqueville suggested public charity only for the non-able-bodied. He even argued in favor of taxpayer-provided public education for the poor. For the able-bodied, however, Tocqueville said, "There are, however, two incentives to work: the need to live, and the desire to improve the conditions of life ... Well, a charitable institution indiscriminately open to all those in need, or a law that gives all the poor a right to public aid, whatever the origin of their poverty, weakens or destroys the first stimulant and leaves only the second intact."

Tocqueville spoke about the negative effect of government-guaranteed charity. Kennedy spoke of the negative effect on taxpayers' initiative. Again, does government spending "stimulate" the economy, or does the economy function better, more efficiently and more humanely when citizens keep and spend as much of their own money as possible? Does the Jobs Training Partnership Act "work"? Wouldn't the Small Business Administration loan default rate get a private sector bank CEO fired? Has local education improved under the federal Department of Education, which now spends approximately 7 percent of our total education budget?

Moral to the story: Why wait until a war to "stimulate" the economy? A government that spends as little as possible on non-defense-related matters says to taxpayers, "Work hard, keep your money, and we trust you to spend it."

Pretty stimulating, huh?


JWR contributor Larry Elder is the author of the newly released, The Ten Things You Can't Say in America. (Proceeds from sales help fund JWR) Let him know what you think of his column by clicking here.

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© 2001, Creators Syndicate