The stimulus process brings to mind the old adage that while you might like sausage or legislation, you don’t want to watch either one being made. But I think the final bill came off better than most expected. For the first time in over a decade I have some hope for the U.S. government working in our country’s best interests. Whether or not you agree with the Obama team’s strategy of letting Congress do the drafting until the final negotiations, the investments in high-speed rail, research, and the internet will pay off in creative class productivity (and these are investments – if the government were a business they’d go straight to the balance sheet, not operations spending.)
- A post here worried about cuts to transit to fund tax cuts. The final bill increased high speed rail to $8 billion (up from $300 million in the first House bill), $8.4 billion for mass transit, $1.3 billion for Amtrak (only 60 percent for NE corridor, so maybe some will reach Oregon). Yes, still too much for highways and leaving decisions to the states could be bad, but I think there’s language about focusing on maintenance before new construction.
- There’s $10 billion for the electric grid to support the $20 billion for alternative energy.
- In research, NIH gets $10 billion (thanks to Arlen Specter), $1 Billion for NSF, $1.6 for NASA, and more.
- The funding for $7 billion for rural high speed internet and $17 billion online medical records are steps toward catching up with the rest of the industrialized world.
- Increases in Pell grants and tax credits for college will hopefully help more people go to college.
Beyond these productivity building investments, other parts of the package are necessary or at least not as bad as they could have been:
- The tax cuts, while not as productive as investment, are targeted at the middle class and toward being spent in the real economy, rather than rewarding people buying a third “home.”
- Some of the holes in the safety net are being patched with more money for Medicaid, food stamps, and unemployment.
By the way, probably the best political job in America today is John Baldacci’s, the Democratic Governor of Maine. As far as I can tell, his state’s two Republican senators didn’t ask for anything in negotiating the Stimulus. But don’t be surprised to see some extra job training centers and wind energy farms Down East.
OK, what do you think?
February 16th, 2009 at 8:22 pm
Well, all in all, not half bad. Not nearly as bad as I’d have thought. I don’t like the $20 billion for school construction being cut, as 10% of local school district money is dependent on federal aid. We also cut 3.5 billion in federal building greening, which I think is stupid. We’d put people to work and save money in the long run doing that. I also wanted the $2 billion broadband to improve rural economies, but as I don’t live in a rural area and I agree with Richard and others that the future is urban, I’m not exactly worried. $40 billion in state fiscal stabilization would be nice, considering not only California, but Alaska, Florida, and now Kansas are on the brink.
But I’m quibbling about about $66 billion of a $800 billon or so bill. I’m not even at 10% yet and if ANY spending bill that gets through Congress isn’t at least 50% junk that’s probably a tremendous achievement, given past history.
I do think the tax cuts are rather silly. I can take my meager tax cut and hoard it, I can blow it on strippers, or I can use it to buy an Italian yacht, none of which improves the American economy much.
My real concern is that with $1 trillion less of demand that $800 billion won’t be big ENOUGH to do anything to really right the economy.
Next up is apparently banks and autos, so we’ll see.
But all in all, I’d say 7 out of 10, maybe 8 out of 10 if I’m in a good mood, but it’s Monday so I’m not. 7 out of 10.
February 16th, 2009 at 8:24 pm
Poor John- I’ve worked with him- so much the deal broker rather than the deal maker….but as long as the two “girls”, as Mainers call Snowe and Collins, play the role they tend to play, the money will get to the state….Kind of like how they gave up a SCOTUS vote for increased LIHEAP funding.
Once again, I have to agree with you, Michael. But Maine is in such dire straits, on many levels, that I’m not certain the Girls can bring enough home to help. Kind of funny to hear Collins nix the components of the stimulus which could really be of benefit to the state. Nightmare fiscal situation.
February 16th, 2009 at 8:54 pm
Swordsman,
Not my dream package either. But in office 3 weeks, Obama has successfully launched several initiatives that we couldn’t have dreamed of a year ago. And my guess is these tax cuts are ammunition for a restructuring when the totally unproductive Bush giveaways run out next year. Given the crazyness and hostility in DC over the last decade, I’d say 7 of 10 is at least a B+.
Sm2,
I don’t know Maine or its politics, just noticed that “the girls” are positioned to bring in a lot of favors — neither side can afford to make them unhappy. I do wonder if the R’s are angry enough to run a right-winger in the 2010 primary against Specter and give Penn to the D’s. Or if he’d pull a Lieberman and win as in Independent (probably too old to want to.)
February 17th, 2009 at 7:21 am
Since most of the monster cuts I detailed above were engineered, as far as I can tell, by Collins, I’d say that the citizens of Maine made a bad choice in her last November. But that’s me.
I think it’s more than a B+, and I’ll tell you why. The President bent over backwards to show he was bipartisan. He did everything he could to get Republican votes and they tossed it back in his face. The Republicans think they won some major victory here, but it’s hard outside of the Washington beltway to see how that tracks when 60% of people want the stimulus package and 65% or more say the President is doing a good job versus about 25-30% who think the Republicans are.
But now the President can say “hey, I tried” and then go do what he wants and if the GOP objects, he can legitimately say “they had their shot”. GOP governors are NOT happy with the Republicans in Congress since Schwarzeneggar, Palin, and Crist, among others are on the brink of state bankruptcy.
But, yes, Specter, Collins, and Snowe have 2 years of inordinate power. After that, they’re probably irrelevant.
February 17th, 2009 at 7:47 am
The bill, of course, could have been better. But given the constraints on Washington and what we saw in earlier versions, I agree that the bill exceeds expectations. The late line-item increase in high speed rail spurs lots of cheers here! Of course, a lot of that is for a magnetic levitation line from Disneyland to Las Vegas– the societal value for the country could be questioned but this should be viewed as a pilot project for new high-speed rail. I personally have been watching this technology for several years and wondered when we would first see it in action. The train travels at 312 mph and would be perfect for connecting the dots between cities on the east and west coasts and in other regions.
The bill accomplishes more for Obama in one month than most presidents could hope to accomplish in a term. Its long-term stimulative effect probably exceeds its short-term impact although the tax cuts certainly provide an immediate stimulus and there’s still quite a bit of infrastructure spending in the bill although it would have been nice to have seen more. Doesn’t it make sense to spend on infrastructure when the economy is down? Bids are cheaper, meaning the costs to the taxpayer are less, and the government does not crowd out the private markets during an up-cycle?
I was also glad to see some re-investment in NASA. We need more of that. And we need to super-fund the SBA programs…maybe next month.
February 17th, 2009 at 8:31 am
“I think the final bill came off better than most expected. For the first time in over a decade I have some hope for the U.S. government working in our country’s best interests”
You’re kidding right? Your talking about this “stimulus” bill that was so rushed through (so princess Nancy could go to Rome), that none of these idiots who voted for it read it?
In our best interests? With friends like that who needs enemies? Our starting point with this joke is $787 billion, which is only the starting point since you have to add interest – but then again who’s counting if you aren’t the one who’s going to have to repay this monster debt.
President Obama wrote in an op-ed piece in the Washington Post that if Congress does not pass his “stimulus” package, and do so right away, “Our nation will slip deeper into a crisis that, at some point, we may not be able to reverse.”
Wow, the stimulus bill must contain some really important stuff if it’s critical to the survival of our country! I better take a closer look. Maybe the guy is really onto something. However, research revealed the massive spending proposed in the bill:
– $50 million for the National Endowment for the Arts. How about we only pay for what we can afford?
– $380 million for the Women, Infants & Children welfare program. To help “Acorn Voters” and Chicago’s South Side.
– $300 million in grants to combat violence against women. Now are they going to pay Violators not to continue?
– $1.2 billion to provide “youth” with summer jobs. Doing What and Who Hires Them?
– $2.4 billion for “neighborhood stabilization” activities. That’s a good one! Payment Again to Vote Early and OFTEN!
– $650 million for digital TV coupons. There are Only 300 MILLION People in the U.S. More than Half are on Cable. No need for coupons for them.
– $150 million for the Smithsonian. They have doing OK for the last 100 yrs; Leave them alone!
– $34 million to renovate the Dept. of Commerce headquarters
Now That’s a lot for New Wall Paper and Carpeting!
– $500 million for improvements to the National Institute of Health facility. Sounds like a Big Medical Bill to pay for What?
– $44 million for repairs to the Dept. of Agriculture’s headquarters. How come? Where is Regular Daily or yearly Maintenance?
– $350 million for agriculture department computers. Gee, don’t they have any now?
– $88 million to move (that’s right, move) the Public Health Service into a new
building. Wait, Didn’t we just give them 500 MILLION a few lines back?
– $1 billion for the Census Bureau. That for Redistricting to get more Democrat voter areas.
– $89 billion for Medicaid. Now if they would imprison all the MEDICAID CHEATERS, we probably wouldn’t need this much!
– $30 billion for COBRA extensions. What is COBRA and Who gets the Money?
– $36 billion for expanded unemployment. That’s it! Instead of creating employment, pay them to stay home.
– $20 billion for food stamps. For illegal immigrants too?
– $850 million for Amtrak. If Amtrak were run like a business instead of Government, it wouldn’t need that much.
– $87 million for a “polar ice breaking ship” (What about the ice caps melting because of global warming?)
– $7.6 million for the Rural Advancement Program. That will help a bit.
– $150 million for “agricultural commodity purchases.” It will not help the FARMER, but it will fill the pockets of Traders!
– $150 million for producers of livestock, farm-raised fish and honey bees. There has to be a Glitch here for someone Other than Farmers to get most of this.
– $160 million for paid volunteers (what is a “paid volunteer”?) at the Corporation for National and Community Service. “Where do I apply for one of those paid volunteer positions?”
Are we really to believe President Obama that we may not be able to reverse our country’s slide if he, Harry Reid and Nancy Pelosi are prevented from ramming all this pork down our throats? And, by the way, what happened to President Obama’s pledge to end pork barrel spending?
Another interesting tidbit: President Obama said that one of the reasons Congress must pass the stimulus bill, and must pass it NOW, is to end our dependence on foreign oil. What is astonishing is that he made this proclamation about energy independence less than 24 hours after his new interior secretary canceled the oil and gas leases on 77 parcels of federal land. To me this is stupid!!!
We are only a few weeks into Obama’s term and already he and his party are out of control, spending our tax dollars .
Until now this Stimulus Bill did not have an Official Name and only a Number. It now has a name. It is called,
” CONGRESSIONAL RELIEF ACTION PROGRAM ”
In other words, refer to it by its initials. CRAP!
February 17th, 2009 at 8:53 am
Michael:
Those “totally unproductive Bush giveaways” brought in more tax revenue than ever, so how is that not enough? I can’t understand why liberals can’t acknowledge that lowering taxes increases tax revenue(?)
Swordsman said:
“I do think the tax cuts are rather silly. I can take my meager tax cut and hoard it, I can blow it on strippers, or I can use it to buy an Italian yacht, none of which improves the American economy much.”
Since you don’t understand why tax cuts are more effective than spending, let me put it into terms you can understand:
– 2/3 of the economy is consumer driven. Now we know that the average individual is not going to go back out to the mall until his/her personal balance sheet is in order (meaning they have reduced their debt, and increased their savings). The quickest way to get them there is through tax cuts – or as I would prefer – a payroll tax holiday. I know that will never happen, because that would require congress to forego some tax revenue (spending money for them), and then those silly misinformed citizens might find out how little $$ the government actually needs (with it’s wasting and all).
This is exactly the same thing happening on a business level, in that corporations will not start hiring, and buying things that will move the economy until they feel confident. Considering that all Obama can bring himself to say is how bad things are, I don’t see him helping the climate. I understand why he is doing it though, because if you set the expectations low, they’re easy to attain. Not exactly the “change” I was “hoping” for.
I would close in saying that I am not against spending per se, just that I think the government (like individuals) have to have their priorities in order. Personally, I wouldn’t buy a Jaquar if I didn’t have the cash to pay for it, versus taking an expensive loan. I wouldn’t spend $787 billion + if I didn’t have it.
February 17th, 2009 at 12:52 pm
Jim H,
I’m not an economist, I tend to form opinions based on news articles quoting the Congressional Budget Office and liberal economists like Paul Krugman. They seem to say that tax cuts reduce tax revenue, that this decade’s deficits are partly from the Bush tax cuts, and that tax cuts don’t stimulate as much as targeted spending (let’s leave aside the investment aspect for now.)
I’m open to persuasion. I understand your example about consumers but it’s a story, not data. Can you point me to some data showing that Bush’s tax cuts increased tax revenues or boosted the economy?
February 17th, 2009 at 4:11 pm
For more details on the Stimulus, this site just launched:
http://www.recovery.gov/
February 17th, 2009 at 5:40 pm
Tax cuts stimulate the economy. For all of the liberals who do not want to accept that reality: See Kennedy.
February 17th, 2009 at 5:55 pm
OK, John Kennedy cut the marginal tax rate from 91% to 70% in 1963. It may have stimulated the economy.
Can you point me to some data showing that Bush’s tax cuts increased tax revenues or boosted the economy?
February 17th, 2009 at 6:13 pm
Michael,
I can point you to some that show that he didn’t. Federal revenue from the 2000 budget passed by Clinton raised 2.025 trillion. Bush’s 2001 budget including the first round of tax cuts pulled in only 1.991 trillion. Bush’s 2002 budget pulled in 1.853 trillion. Bush’s 2003 budget, with a second round of tax cuts, pulled in 1.782 trillion. And a final nail in the logical coffin is: those tax cuts are still in effect. How’s that economy been stimulated the past year or so?
Jim,
Nice laundry list of stuff you hate. Most of the programs you despise will actually create jobs. The last person to attempt to ‘pay for what we can afford’ during an economic downturn as severe or worse than this one was named Herbert Hoover. Somehow, I don’t think that’s the model we want to go for. There is no provision to help Acorn. I can link to the debunking of that, if you wish. COBRA is health insurance for those who are recently unemployed. If that WASN’T increased, I’d think we would have a problem. I urge you to look at this with a less partisan eye. Most of what you list is actually not accurate, including the acronym “crap” and the neighborhood stabilization money, which got axed.
February 17th, 2009 at 6:24 pm
Michael,
What you tax you get less of. Just google Maryland Smoking Taxes and you will find, I’m sure on how they rasied taxes on cigarettes and got less tax in. Washington state did the same thing and got less tax in. Then they lowered taxes and got more taxes in. Do away with the capital gains taxes and watch the market haul as-. Clinton did it and got tons more in tax revenues, he lowered the cap gains tax.
I’ll detail further when I have more time….
February 17th, 2009 at 7:39 pm
The CBO said this in “Growth in Federal Tax Revenues From 2003 to 2006″:
“Had revenues grown at the same rate as the overall economy between 2003 and 2006, federal receipts would have increased by only $373 billion. The other $252 billion of the actual increase in revenues represents growth in excess of GDP growth. As a result, receipts as a share of GDP rose from 16.5 percent in 2003 to 18.4 percent in 2006, an increase of 1.9 percentage points.”
There were tax cuts made in response to the recession triggered by (1) the tech bubble bursting and (2) the 9-11 attacks. Given that tax revenues grew faster than the GDP from 2003 through 2006, it appears that revenue came back to the treasury, and then some. That seems counterintuitive, since diverting that tax cut money into the economy should increase GDP but depress tax collection.
Most people think you make twice as much money selling two cars than if selling only one. Wrong. If you sell only one, you loose $100,000,000 in labor, material and tooling expenses. If you sell two, you loose the same amount. Sell 50,000 and you only loose $50,000,000. Sell 100,000 and break even. In this example, every car sold above the break even means greater per-unit profit.
Only a small change in volume can make or break profitability. Tax cuts can raise consumption within a sluggish economy into profitability and thus lead to increased tax revenue, or even tax revenue where none existed. However, tax cuts have a short shelf life. When an upward trend is confirmed, businesses lever up to meet projected demand and profits shrink in favor of growth. Usually, projected growth is optomistic, and business cycles down.
One of the problems with this stimulus bill is that overproduction has not been addressed. If we spend money with companies that go on to only break even, or even continue to lose money, that will not return the stimulus money back to the treasury as tax revenue. We can’t prop up zombie car manufacturers and financial institutions, insuring overcapacity, and hope for profitability to return.
Similarly, keeping/adding millions of jobs won’t return revenue that is being expended. With our progressive tax system, the bottom 50% of income tax payers are actually a liability due to earned income tax credits. I think the median income is about $35,000, so a whole lot of the millions of jobs, if actually created, need to be earning well above median income for taxes to be collected to pay for the stimulus. But really, we’re just hoping to get employment numbers back up to where they were, and in doing so adding hundreds of billions of dolars in debt that we didn’t have two years ago when at the same employment levels. Even two years ago, the national debt was out of control.
Which gets to the main point – SPENDING. Cutting taxes should mean cutting spending, not adding debt. But whether in good times or bad, our politicians have always justified spending in excess if income.
February 17th, 2009 at 7:50 pm
Median income is closer to under $30k. What you have there is the mean.
February 17th, 2009 at 7:51 pm
Oh, and I agree with not propping up zombie car manufacturers, banks, and the like. That actually IS ridiculous, sort of like the scene in The Dark Knight where the Joker torches all the money.
February 17th, 2009 at 8:08 pm
So we have two sets of figures for the Bush years, pointing in opposite directions. We’ll all probably go on believing whatever we did before. Great discussion, though.
Jim H brings up a vital point. Taxes themselves aren’t good or bad, they’re a policy tool. Whether to raise or lower them depends on what you want to accomplish. Raising sales taxes on cigarettes is often intended to discourage smoking and it does, so there’s a social benefit even if you collect fewer taxes. Lowering capital gains taxes encourages investment, but if done wrong can encourage stock day-trading, house flipping and economic bubbles. Lowering estate taxes encourages the growth of an inherited money aristocracy. From what I’ve read, income taxes up to the mid 30% range have little effect on economic growth. Lowering all taxes leads to deficit spending. Tax policy depends on what you want, and it has to be done carefully.
Here’s the mission statement of the US Government:
“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
Notice that it’s silent on raising or lowering taxes. To the extent that taxes, or the stimulus package, promotes these things it’s a success. To the extent that it doesn’t, it’s not.
February 17th, 2009 at 9:41 pm
Jim H – thanks for raising the issue that always confounds me as well. The issue should be tax revenue, not the tax rate. If lowering the tax rate increases revenue, then everyone should be happy. We’re not TRYING to increase the deficit as much as possible, right?
Michael Wells – taxes are certainly more than a revenue instrument, and are a policy tool. My concern is what policy. The government pays for heathcare for smokers (Medicare/Medicaid), so I believe the government has an obligation to try to reduce that cost by reducing the number of smokers. But when it stops being a policy tool, and starts being an ideological tool, it bothers me. Obama said during the campaign that he wants to raise taxes on the rich, whether it affects revenues or not, because it was “fair.” Why is it more “fair” for the rich to pay an ever increasing percentage of their income? What policy are we encouraging? A disincentive to accumulate wealth? To me that crosses the line.
February 17th, 2009 at 10:05 pm
It’s also myopic to look only at federal revenue when taxes are cut. Less taxes equals more corporate and consumer spending = more state and local revenue. So looking only at federal revenues misses the mark.
As for the Bush economy, recall that Bush inherited a recession due to the .com bubble-burst; and then accounting scandals before 9/11 decimated the markets. I would judge Bush much more harshly for neutering the SEC and being complicit with the housing mess; along with Democrats and Wall Street, they all had their paws deep in this one.
But I’m not one of the tax-cut only fools who doesn’t realize that we need spending to stimulate demand during a down-cycle like this one. We need stimulus II yesterday loaded with infrastructure spending and super-funding for the SBA’s. Nationalize the bank and direct lend, as I’ve been arguing for nearly a year on this site, the student loan model is a good place to start. Invest in those who demonstrate their qualifications and drive and let them go start tomorrow’s Apples, Googles and GM’s. Let the old dogs die, they will not learn to perform new tricks. That means letting the auto industry undergo a massive re-structuring. Take the assets (factories + equipment + labor pool) and let someone put all of the pieces back together. Give each of our best defense contractors the task of designing the best vehicles on earth like they do with fighter planes and military vehicles Tell them to spend as much as they want, just come up with incredible designs that can be built profitably. And let the new company build and sell them to the world. This is of course too ambitious and simple to ever make it through Washington but that’s the kind of model that would work.
February 17th, 2009 at 10:22 pm
“Lowering capital gains taxes encourages investment, but if done wrong can encourage stock day-trading, house flipping and economic bubbles.”
Lowering capital gains taxes DOES NOT encourage day-trading, house flipping and bubbles – GREED does. Greed fueled by inexperienced investors (of all stripes). The smart money didn’t get burned by these foolish fads.
Capital will flee to where capital is uninhibited. Because Obama is a an academic bureaucrat with no real business or executive experience, he doesn’t get this.
February 17th, 2009 at 11:17 pm
Jim, are you arguing that greed is not a thread that runs through capitalism?? Of course it is, the more competitive the game, the more at stake, the more some people will cheat to get more. I’m all for capital gains cuts but not naive enough to think that capitalism isn’t enveloped by greed.
The smart money did get burned. But they thought they could get out quick enough; they thought they could sell those worthless mortgages to Asia, the middle east and every other corner of the globe before the defaults began to hit but the music stopped too early. Bush neutered the SEC and let run Wall Street run wild. This is what happens when you take the proctor out of the room! Just like steroids and baseball, no drug-testing = massive abuse of steroids. The NFL had the same problem before it instituted stringent cheating. I’m always amazed that the free market defenders somehow thing that the free market doesn’t need to be regulated; that it will somehow adhere to honest polices and straight conduct without regulation. We need a free market playground with a referee in the middle with the authority to blow the whistle to keep things in check.
February 18th, 2009 at 12:24 am
Nashvillian,
I think you misunderstand the Earned Income Tax Credit. People earning $35,000 certainly pay taxes. If they have children and earned income, the taxes are reduced some. Paying a nominal tax rate of 15% plus social security of 7.6%, taxes would be $7,000. Of course it’s lower with deductions, but certainly someone at median income pays a few thousand in federal taxes.
For a person with two qualifying children, the EIC is equal to 40% of the first $11,790 of earned income, reaching a plateau of $4,716 and staying there until earnings increase beyond $15,399, at which point the credit begins to phase out at 21%, reaching zero as earnings pass $37,782. For one child the upper limit is $32,240 and for no children the limit is $12,590. Someone has to be living at the poverty level to pay no taxes.
More here: http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit
February 18th, 2009 at 6:46 am
Hayden
I’m not saying greed doesn’t run through capitalism, I’m just saying cap gains doesn’t cause investors to change their habits irresponsibly.
Of course greed is part of capitalism. That is what makes it so effective; If I’m part of a socialist system with a set paycheck and no incentive to innovate, why would I? I wouldn’t – look at the former Soviet Union. They merely copied/stole ideas on technology, and ultimately imploded; all socialist societies do.
February 18th, 2009 at 7:07 am
Let’s remember that there are other motivations than greed too, however.
And socialism is not just limited to the former CCCP.
On balance, I’d rather we were capitalist. But I’m not religious about it. If socialism works (and I’ve no idea how we got to socialism since there is little if anything in the bill that is socialist), then by all means let us pursue it.
Sometimes tax cuts work. Sometimes tax increases work. Sometimes government regulation is the answer. Sometimes deregulation is.
Case in point: Reagan deregulated the airlines. This was a good thing as it promoted competition and actually gave that industry a shot in the arm. But Reagan also deregulated a lot of the food industries, which was not overregulated to begin with, and this was not a good idea.
A lot of folks on both sides of the political divide are advocating a gasoline tax. I don’t know if that is the right course or not. But sometimes tax cuts are good and sometimes not. Depends on what tax is being cut, when, and who benefits.
One thing I am especially wary of: people who think a certain tactic works ALL the time, in ALL situations. It doesn’t. I guess my point is: this isn’t a zero-sum game and it never will be.
February 18th, 2009 at 9:18 am
Michael,
I number I read was that the upper 50% of taxpayers (not necessarily the top earners, because some dodge) pay 102.5% of income taxes. The explanation was that the imballance between the taxes paid by the bottom 50% and the EITC many in that segment collected was a net loss to the treasury. Certainly, there are many millions of tax payers in that group. I did not mean to claim that no one below the 50th percintile paid income taxes, only that more is transferred than collected.
Also, regarding the mission of the US government, no where does it imply that it’s the mission to offload all bad debt from the private sector and restructure failing corporations, nor do I read anything about maintaining full employment at the cost of taxpayers. If this sucka blows, it will be from unserviceable national debt, not from any shortsightedness from the founding fathers. The quote of the week has been from Benjamin Franklin, who, upon leaving the convention was asked, “Well, Doctor, what have we got — a Republic or a Monarchy? He replied, “A republic, if you can keep it.” Are we keeping it, or selling it out for financial security?
February 18th, 2009 at 2:14 pm
I just read a piece in Asian Times Online from Spengler (in which he referenced Richard, BTW). He makes a good point regarding the movement of needed capital from worlwide investment into comparatively safe U.S. Treasuries that this stimulus requires:
“A radical shift in economic power in favor of the United States makes Obama the moral equivalent of a unilateralist, to a degree that Reagan never could have imagined. To overpay unionized construction workers to build bridges, and bail out the bloated budgets of American states, the Obama administration will flood the world with so much Treasury debt that capital will flow out of the poorest countries to buy it. Rather than protest this outrageously unilateralist action, the rest of the world encourages him to do so, hoping that somehow the Obama stimulus package will get American consumers to buy their goods once again.”
He also talks abit about the theory behind supply-side economics and the toll that low birth rates are taking on the most advanced industrialized nations.
http://www.atimes.com/atimes/Global_Economy/KB18Dj05.html
February 18th, 2009 at 3:47 pm
Nashvillian,
Check out the formula for EIC. It’s mathematically impossible for the EIC to result in a net loss. Most people collecting it get, in effect, a tax cut not a refund and just pay less. You have to be working and filing to be eligible. The very poorest who don’t have jobs have no earned income, so no credit. People subsisting on welfare, unemployment, social security have no earned income and don’t get EIC. People operating in the cash/underground economy and not reporting don’t get EIC. Undocumented immigrants who have Social Security deducted under phony numbers but don’t file returns don’t get EIC. And in fact, many of the lowest income working people who would be eligible, but are below the level to owe taxes, don’t file and so don’t collect.
The Asian Times article is interesting. I’d add one thing. You can add China to the countries where aging populations are going to cut short their economic growth. The One-Child policy has set them on the road to eventual economic decline.
February 18th, 2009 at 10:05 pm
That said, I of course know that the top 50% pay over 90% of individual income taxes (somewhat less if you include social security). But this has to do with income distribution towards the top, not the EIN.
And of course paying taxes isn’t the primary social, economic or political value of having anyone working.
February 19th, 2009 at 10:02 am
Michael,
One can expend money to “create” jobs in any economic climate. Probably better to do it when the economy is heating up, in lieu of encouraging “imported” workers as we have. The issue in my mind is that going masively into debt to create jobs of dubious productivity (we should be mostly decreasing productivity, IMO) when swimming in mind-boggling debt is only smart if we are reasonably sure that public expendature (investment, if you prefer) comes back as new tax revenue. Or as some argue, comes back in a quantity sufficient to pay the interest on that new debt.
Dividing 800 billion by four million is about $200,000 per job. People can rediscover the social, economic and political value of having a job for much less than that ;’) My point was that a significant number of those jobs must pay above the 50th percentile, most above the 25th percentile, for many years for that revenue to come back. Color me skeptical. I think we’ll get more jobs but be even deeper and more permanently in debt when the dust settles. I think the Congressional Budget Office agrees.
Here’s an idea. The government could set up a job assistance program whereby prevailing wages are set for emerging occupations and those jobs are subsidized. For instance, someone starts up a company to develop a new product. He has a tiny staff that is overworked, but it takes all his capital to run it. Now, he has the cash flow to hire a researcher for $10 an hour, but right out of college they’re asking for $20, so the job won’t exist. If the government paid half the cost of the new employee, then that job, creating the new economy, will only cost $20,000 per year to create. If the “budget” is $200K per job, then that’s ten years that job can be subsidized until success allows wages to increase to sustainable levels. However, I suggest that a prevailing wage table be used to force the employer to increase his share of employee compensation annually until the subsidy is phased out. That gives the taxpayers more control over which jobs get created and how much is spent creating them.
February 19th, 2009 at 12:18 pm
Nashvillian,
OK, I see where you’re coming from and can agree that it’s a rational and defensible position. I just see it differently, but acknowledge that you could be right.
My initial comment about investment, and dividing the stimulus that way, is twofold. One is that from a financial and accounting point of view, borrowing to pay for an asset that will result in increased productivity and income is different from spending for immediate needs — research, high speed rail, transit, electric grid should all pay for themselves: for businesses, for society and ultimately back to the treasury. Second, the US has underinvested for decades in both new technology and maintenance. High speed rail, faster internet, more efficient electric transmission (for that matter, better mileage cars) are proven technologies already in use in Europe & Asia. Roads, bridges, water systems are deteriorating across America to the point that they’re safety hazards.
On to borrowing to create jobs, this is more like using your credit card to pay your rent. Not good in itself but a way to get through tight times when the alternatives are worse. The advantages of spending over tax cuts are that: you put people to work so you don’t have to support them, if they’re not working tax cuts don’t do them any good; you support multiple businesses (for highway repair the asphalt manufacturer, the heavy equipment company, the contractor doing the work, etc.); the money goes into the economy and gets spent the same as with tax cuts, but you can also get an asset.
And, thanks for a good discussion that sticks to the issues.
February 19th, 2009 at 11:08 pm
And, after burning all this trillions, we’ll start new WWIII