A STIMULUS THAT DOESN’T STIMULATE

I’ve been opposed to Barack Hussein 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 recession ended.

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 benefit.   

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 create 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. 

Congressman Scott Garrett (R-NJ) in fact introduced a bill – H.R. 470 – in Congress this week (1/13) that would do just that.  (Go to http://www.thomas.gov and enter H.R. 470 in the Bill Number Search Box and you’ll get the entire text of the proposed legislation.)

Corporations are whipping boys in political rhetoric.  But 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.

Congressman Garrett understands this.  Not many on the other side of the aisle from him do.

Jack Kelly is a former Marine and Green Beret and a former deputy assistant secretary of the Air Force in the Reagan administration. He is national security writer for the Pittsburgh Post-Gazette.