What's the best way to boost a stagnant economy? What's the role of the government?
Before the inaugural parade floats are disassembled, President Elect Obama will introduce his economic stimulus package. At its core, the package will seek to create jobs, help those that are hurting the most, and get Americans spending money again. But is his plan really going to accomplish that? Can it? I think not. But before I get into why, allow me to suggest an alternative stimulus plan.
Texas' first district Congressman Louie Gohmert gets it. His idea? Give Americans a federal income tax holiday. Two months with no federal withholdings. No FICA either. Why? To get cash into our pockets, that's why. How ingenious – increase the buying power of real Americans (not the government), and allow us to invest or spend the money as we see fit.
Okay, so back to Obama's plan. "What's wrong with you, Fred?" you ask. "What problem do you have with the government creating jobs?" Simply put, I think the private sector would do a better job than the government. I could write a thousand words on this topic alone, but I’ll leave it there for now.
"And what of $300 billion in tax cuts? Helping those that are hurting the most? Surely you can’t be against tax cuts, Fred!" I’m not against tax cuts, and don't call me Shirley :) Tax cuts are great – they're even better when the money goes back to the people that actually paid the taxes in the first place. If you're in the middle class, the largest portion of those cuts will go to folks that never paid taxes to begin with - the poor. That's not a tax cut. That's redistribution of wealth. I won't use the "S" word, but you get the idea. It reduces the middle class' incentive to produce, and that's never a boost to the economy.
"Helping those that are hurting the most" is simply a talking point. It's not true. The "tax cut" for the poorest Americans is great for the poorest Americans, but they are not hurting the most. The majority of the jobs lost in 2008 were not lower income/minimum wage jobs – they were largely middle management and manufacturing jobs. Add this nugget to the fact that the consumer price index is down! That is, the price of a bag of groceries is a lot lower in January 2009 than it was in the summer of 2008. The poorest Americans are spending less to get by, and getting more help from the government. Those that are really hurting the most (i.e. the unemployed middle class) are getting it twice – they're losing their jobs, and the taxes they should get back in the stimulus plan is going to their new neighbors.
Congressman Louie Gohmert's plan would put cold hard cash into American pockets. That would in turn, stimulate the economy. Allow me to illustrate:
1. Fred pays no federal income tax for two months
2. Fred has more money
3. Fred spends some of his capital at the market
4. Store shelves lose inventory and need to be restocked
5. Stores hire stock boys, widget makers make more widgets, truck drivers drive, all reacting to Fred's trip to the market
How's that for economic stimulus? Sounds too simple, right? Too simple to work? I think not, but you'll NEVER see it happen. If we got a collective glimpse at our gross income, Congress would have a hard time justifying the current level of taxation.
Good luck with the corsage, President Obama. She's allergic to flowers.
Subscribe to:
Post Comments (Atom)
3 comments:
Fred! I have been saying this for months. I am glad to see that someone else understands and agrees...
Fred,
There are a couple of issues with your reasoning. Tax cuts are not always the best way to recover from a recession. They would be a particularly poor tool in our current situation due to the recent stock market crash and the level of debt that so many Americans have taken on. Most of the money from tax cuts right now would go straight into retirement accounts, savings accounts, and towards paying off a variety of debts (delinquent mortgages would likely be at the top of the list). This would definitely provide relief to the average American and may even help our financial crisis by indirectly infusing our banks and stock markets with cash, but I don’t agree that it is the best way to beat the recession.
Even if all of the money were directly injected back into the economy by newly wealthy consumers, there is still a problem. Lots of the things we buy are made in China, or pumped out of Middle Eastern deserts. How much of the increased consumer spending will end up lining the pockets of foreign businesses and governments?
Congressman Gohmert’s plan also raises a difficult accounting question. How would those proposed holiday affect next year’s tax filing? Call me cynical, but I think these changes would increase the amount of time I need to spend filing taxes.
Nothing is more effective at ending a recession than creating new jobs. Government investments into infrastructure and scientific research not only provide our ailing economy with jobs right now, but they are an investment that will pay fantastic dividends down the road.
I’m sure you remember the tragic bridge collapse in Minnesota 18 months ago. More bridges across the country, as well as a number of other important pieces of our infrastructure (the electrical grid, levees, ports, etc.) are in dire need of a massive overhaul. A recent Popular Mechanics article estimated that the government would need to invest an additional $600 billion over the next 5 years to ensure that all of the proposed projects are completed (http://www.popularmechanics.com/technology/transportation/4258053.html?series=53). Every dime of this money can be focused into construction and manufacturing companies that do business in the US. People that were previously unemployed now have paychecks to spend again, the manufacturing sector gets a much needed boost, and our children inherit a country with a modern, functional infrastructure.
I love Gohmert’s idea, but I think that there are more effective means of prodding the economy out of the current recession, and I think there needs to be some more in depth analysis of the practical effects of the tax holiday plan before it is given more serious consideration. Maybe a short tax holiday could be combined with the important investments in infrastructure and research.
Sam, you're plain wrong on tax cuts. Even if everyone banks the money they'd receive from tax cuts (i.e. not spend it on shiny new things), the influx of cash to banks would provide those banks with more capital. That would free up lending. Your comment, "...I don’t agree that it is the best way to beat the recession". Then what would you suggest? Pork projects?
And your concern that Congressman Gohmert's plan would make it harder to file... give me break! What could be more complicated than the tomes that is already are our tax code?! Can you say 'flat tax'?
On "jobs through infrastructure". How many jobs, Sam? 1,000? 100,000? The roads and bridges portion of the current plan is less than 5% of the overall package. Not to mention, it's planned to be portioned out over the next 3 years. Immediate and swift action? Please!
It's simple, Sam. here's my message to Washington: Spend less (like the rest of us). Balance the budget at least! Then, let us keep more of what we earned. Get the hell out of the way, and let us fix this thing! You screwed it up. We can't expect you to fix it!
Post a Comment