There’s an old saying that “a camel is a horse built by a committee.” And if you look at the final stimulus plan resulting from compromises between Democrats and Republicans, you’ll see how true the old saying is. If ever there was a camel that started out as an attempt to design a horse, this is it. I’m sure the final plan will do some good, but I am afraid it’s too puny to kick start the stalled economy the way President Obama hopes.
And if this stimulus package doesn’t work, we will be in real trouble. The chart above shows how precipitously jobs are disappearing in this recession, compared with previous downturns in the economy (the green line shows current job losses). As they say, a picture is worth thousands of words.
But this package is ultimately disappointing. Too much of the $789 billion total is assigned to the rich. Abolition of the Alternative Minimum Tax is an example of concessions made to Republicans that will be good news to well-heeled taxpayers, but have little or no impact on the economy. Unless you’re one of those taxpayers with file folders full of deductions, you probably aren’t affected by the AMT. It was introduced in 1969 because the richest Americans were claiming so much in deductions that many of them weren’t paying much – if any – income taxes. But as the population and economy grew, the AMT affected more and more taxpayers, and there was widespread opposition to the tax. Now it’s gone. And officials estimate it’s going to cost the government more than a trillion dollars in uncollected income taxes over the next decade.
Elimination of the ATM is just one of the demands Republicans made for their razor-thin support, which was needed to avoid a bill-blocking filibuster in the Senate. Republicans also demanded and got a wide range of tax breaks for business, even though a $54 billion hand-out to money-losing companies over the next two years was limited to small businesses by the compromise negotiations.
Republicans argue that money the government doesn’t collect in taxes will be spent by the taxpayers to stimulate the economy. The theory is that as the economy grows, more taxes will flow into the government’s coffers – so the end result of cutting taxes is increased revenues. The debate over the effectiveness of tax cuts will go on long after you and I are distant memories, and I can’t possibly do it justice in a blog. I will just sum it up my view of the issue with this quote from Nobel prize winning economist James Tobin:
The …. idea that tax cuts would actually increase (government) revenues turned out to deserve the ridicule with which sober economists had greeted it ….
However, I have to confess that I am lacking in faith when it comes to some of the President’s pet projects. I don’t believe, for example, that easing the payroll tax burden by $10 or $20 a week for working stiffs will have much impact on America’s $14.3 trillion economy (especially when the working population is shrinking so rapidly). Nor do I think that giving geezers like me a $250 “tax rebate” will make the local supermarket expand its staff.
One part of the bill that I definitely regard as “stimulus” is the provision for infrastructure. I can see how jobs for hard-hat workers will have a multiplier effect. Members of the road construction crew will put money in the pocket of the lunch wagon operator and leave tips on the table at the local pub, for example. Also, the roads, bridges, airports, or whatever, they build will yield benefits for years to come. I also have high hopes for the money set aside to create “green jobs” and reduce the nation’s reliance on foreign oil.
But what do I know? Wiser heads than I have said the entire spending portion of the package will be “stimulative.” Here’s a quote from economist Dean Baker, co-director of the Center for Economic and Policy Research:
Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple. … Any reporter who does not understand this fact has no business reporting on the economy.
All I can say to that is: I hope you’re right, Mr. Baker.