Opinion: Column
Beefing up Obama’s stimulus package
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Also by Gerald Cox:
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- Same old strategies won't save republicanism (March 2, 2009)
- Black leaders won't let America's racist heritage go (February 23, 2009)
- ASM constitution will not succeed without students (February 19, 2009)
- Early missteps mar new administration (February 16, 2009)
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Do the masters of the universe pay taxes?
The recent tax-related travails of Timothy Geithner, now treasury secretary, as well as Tom Daschle and the lesser-known Nancy Killefer lead writer Emily Yoffe to opine in The Washington Post that the IRS, in an effort to find tax delinquents, “should have every American nominated to a Cabinet post.”
If the masters of the universe can’t figure out their own taxes, can we really trust them with hundreds of billions of the hard-earned tax dollars of our future generations?
Men and women — much like the aforementioned tax delinquents — are the ones crafting the stimulus bill now being debated and considered in the Senate. Women like Rep. Nancy Pelosi and men like our very own Rep. David Obey crafted the House version. The result was a bill that too often read like a laundry list of projects and initiatives that Democrats have been unable to fund with a Republican president and a Republican majority in both houses for much of his administration.
In an effort to garner Republican support, President Obama undertook a charm offensive on Congressional Republicans. A number of controversial provisions were cut to shore up Republican support — most notably a provision that allocated hundreds of millions for contraceptive programs in states.
As House Minority Leader John Boehner, R-Ohio, quipped, “How you can spend hundreds of millions of dollars on contraceptives? How does that stimulate the economy?”
Republicans, for their part, have been boneheaded as well. Their insistence upon tax cuts as the magical elixir to cure our economy strikes me as at once hilarious and incredibly dangerous.
I’m all for a massive, targeted stimulus bill that has provisions for both spending and tax cuts to guide us out of a recession that wants very badly to be a depression. But the stimulus bill being debated in Congress is falling short on far too many fronts at this point.
Firstly, the bill being tossed around is too small. The $780 billion compromise will be spread over three years. Our economy is worth $14 trillion. Over three years, assuming no growth or contraction, that’s $42 trillion. Which means this stimulus bill amounts to less than 2 percent of our economy.
That’s like shoveling a sidewalk with a teaspoon.
Japan, in its lost decade of the 1990s, experimented with the very ideas being espoused by this stimulus plan. Trillions were spent on infrastructure and roads in an effort to spur the economy. Yet, it’s called
If
Second, the Republican insistence upon tax cuts is just plain wrong in this kind of economic environment. We’ve lost 3.6 million jobs since this recession began at the end of 2007.
Businesses don’t need tax cuts; they need customers.
An unemployed worker doesn’t need a tax cut. He needs a job.
When you aren’t making any money, and you’re not getting any business, a tax cut means next to nothing. Businesses and individuals need jobs. Tax cuts create a wonderful environment for growth, but they are the equivalent of watering a plant. Jobs are the seeds. Without them, the water does little more than make mud where there once was dirt.
And one of the largest issues with tax cuts is that consumers tend to save instead of spend their tax cuts. Especially in a recession like ours, where the usual rules of saving during good times and spending those savings during bad has been upended. It’s strange, but for our economy to grow, people need to start spending money again. But this time it needs to be money they didn’t borrow.
Further, according to the Congressional Budget Office, the high estimates of the multiplier effect on GDP of government spending, government transfers to state and local governments for infrastructure, transfers to individuals and a one-year tax cut for higher income earners are 2.5, 2.5, 2.2 and .5, respectively.
If Congress really wants a bill that will have a large and positive impact on jobs, GDP and the economy in general, they’d make the bill larger. Second, instead of tax cuts that will end up in consumers’ bank accounts, Congress should spend the billions intended for tax cuts on sending American families a gift card worth thousands, as was suggested by a small business owner writing in The Washington Post. Money in such form would force consumers to spend the money on things they needed or wanted versus saving it and riding out the storm.
But, then again, if we can’t expect our leaders to figure out how to pay their taxes, why would we trust them with our $14 trillion economy?
But make no mistake: At this point, an imperfect stimulus is better than none at all.
Gerald Cox (cox@badgerherald.com) is a senior majoring in economics.
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Actually, Gerald, curtailing the reach of the income tax would be much better. In the beginning, income from labor wasn’t taxed. Today labor is practically all that is taxed. by the IRS.
Bringing our troops home from Iraq and Afghanistan and closing all US military bases would be another smart move. A ten-year moratorium on immigration would be the icing on the cake.
The are plenty of things they can do to fix the economy. Problem is the whiny liberals and conservatives with their own list of pork ventures won’t let it happen. So Natural-born US citizens are stuck with paying all the taxes and being ignored.
The economy seems to get worse every day, but that makes it all the more important to see that the stimulus is properly done — if it needs to be done at all.
Is Obama making a mistake by not make a bigger effort to see that the stimulus bill is a bipartisan effort?
During the election Obama promised change, specifically change in the way the political system works.
Wouldn’t a big part of this change be to try to get Republicans and Democrats to work together on a stimulus bill at this critical time in our nations history?
Stumping along the lines of what Obama has been recently saying amounts little more than I won the election so I have a mandate from the people so we are going to do what I want to do.
How does that help encourage the Republicans to want to work with Obama?
All of the elected officials — Democrats, Republicans, and Independents — have the mandate of the people that elected them otherwise they would not be holding office.
Obama’s line of reasoning that he has a mandate also forgets that he represents all the people that did NOT vote for him.
Although they might not have voted for him he still has a responsibility to them as well to not squander their tax dollars and to not ignore the law makers that they have duly elected.
http://www.weeklypoint.com/2009/02/09/obama-pushes-for-stimulus/
8:30, if you don’t have a job, you don’t pay income tax. Problem solved.
Gerald, your insight into the lack of consumer spending is astute, and I think this is lost on our political leadership. Shoring up the banks will not cause them to lend, and an economy based on credit is what’s failing right now. I’m not sure sending a pre-loaded Visa to everyone will do the trick either, but it might soften the pain slightly (it would certainly make Walmart happy).
I just hope the GOP doesn’t think that the stimulus’ failure is a political victory that will restore them to power in ‘10. I don’t think 2 years will be enough time for us to forget the failure of Bush and the miserable lack of Republican vision for a decade.
12:37, waaaaaaaa! The Democrats aren’t playing nice. I’m going to remember this when (if) the Republicans return to the White House.
P.S. It’s probably more popular to be a hemorrhoid than a Republican right now. Find a new ideology to ruin, please.
“…an economy based on credit is what’s failing right now.”
How can you make a statement like that and then not draw the conclusion that we need to restructure our economy to one not based on credit as opposed to further exasperating the problem.
Same goes for you Cox “Japan, in its lost decade of the 1990s, experimented with the very ideas being espoused by this stimulus plan. Trillions were spent on infrastructure and roads in an effort to spur the economy. Yet, it’s called Japan’s lost decade for a reason.
If Japan couldn’t right its economy with trillions, what makes us think we can with billions?”
Maybe the conclusion you ought to draw is not that the fiscal ‘stimulus’ wasn’t big enough, but that deficit spending as a stimulus does not work at all.
Spending too much borrowed money got us into trouble.
Borrowing more money and spending it is the solution???
5:28, Trillions of Yen are different than trillions of Dollars. There’s an exchange rate, broseph.
And Gerald, the myth of the paradox of savings is such Keynesian bullshit. When people save money they either put in bank accounts where banks can use it to lend (answer to the credit crunch?!?!) or use it to pay down debt, potentially helping to save the asses of people who made risky loans in the first place. The logic behind that arguing that savings is bad for the economy only works if that money is put under your mattress and taken out of the economy. In today’s world this almost never happens.
12:38, do you actually LIKE paying taxes that you shouldn’t really owe? If you work for an hourly wage or a monthly salary, you shouldn’t have to pay any income taxes! And why would you want to? In the first thirty years of the income tax, only the top 50% of all incomes were subject to the income tax. Today you could work full time for minimum wage and owe income taxes. But because the rich fat cats were able to push the income tax liability threshold down all the way, they lightened the burden on themselves and got it to the point where they don’t pay any. The little guy gets stuck with the bill every time because he has no one to pass his cost of compliance onto.
Get the idea?
Someone beat me to it. Lowering income taxes means little when you have no income. The right is offering supply side solutions to a demand side problem.
Japan spent trillions in dollars. They spent 2.1 trillion in dollars between 91 and 95. They were experiencing 3% GDP growth by 96, spurred by their public spending spree. However, like Roosevelt in ‘36, they pulled up short, cut spending, raised taxes, and watched it all crumble around them again. Japan spent $2.1 trillion — again, that’s in dollars — and their economy was half the size of our own.
Again, it’s like using a teaspoon to shovel a sidewalk.
They were the best of times… they were the worst of times……
We are admonished daily that this is the worst economy ‘in the last 80 years’ and only massive government spending of money we don’t have will ‘fix it’. We have a 5.5 per cent interest rate, less than 2 per cent inflation rate, and 7.5 percent unemployment. Is that ‘disasterous’? Hardly……
Our nation has seen tough times in the not too distant past. At the start of the Reagan administration, Jimmy Carter left the US economy with a 21 per cent prime interest rate, 14 per cent inflation rate, and an unemployment rate that peaked at 10.5 per cent.
That could have been truly disasterous, had the new leadership chosen the wrong ‘stimulus’ package. But we had mature leaders that understood economics back then. They didn’t spend like drunken politburo members and then head for the dacha, like our current cadre of socialists just did. The ‘stimulus’ package chosen back then was centered on tax cuts and getting government out of the way of innovation and productivity. What followed was the longest sustained economic surge in our history. Our own history has shown us what works well.
Government is not the solution to our problems. Government IS the problem. Those who fail to learn the lessons of history are doomed to repeat them.
Invictus Maneo