Which stimulates the economy: tax cuts or spending?
Here’s what one of the biggest tax cuts in U.S. history is going to do: A single person making less than $75,000 a year will take home an additional $400 per year under the federal plan passed by Congress, and a couple making less than $150,000 would get $800. This means that the average American will take home an extra $25 in each paycheck. Anybody who thinks this is the sort of “stimulation” that will pull our economy out of its vertical nose-dive is either nuts or being held hostage by their own ideology. Basically, when Obama agreed to add in more tax cuts in order to gain Republican support for the bill (which he never got), he was taking much needed tax revenue from the Treasury and decreasing the amount he was spending on the infrastructure. That is the portion of the bill that will go to repairing our Third World-like infrastructure, including bridges, highways and schools and, in the process, create millions of jobs in the private sector. Government workers will not be doing that work. These will be citizens who would be out of work, not paying taxes, and on government assistance without the program.
Some may recall that last year the government sent out fat rebate checks to tax payers. Families got nearly twice what the tax cuts will net them. Those rebates did NOT go back into the economy, as the wishful thinkers in the Bush administration predicted. For all intents and purposes, the money may as well have been flushed down the toilet because it had no detectable impact on the economy. None.
There are many people who believe with all their heart that giving big tax breaks to corporations and the wealthy will result in expansion of businesses and more jobs. It’s a good theory, but it isn’t borne out by the facts. If anything, we’ve seen in the last 8 years that major corporations taking advantage of de-regulation and tax breaks have chosen to do exactly the opposite by laying off workers, restructuring, moving off-shore, and paying exorbitant bonuses to executives. In the meantime, over the last 15 years wages in the private sector have not gone up. It has been as if we were all background characters in Oliver Stone’s film, “Wall Street”. But, at least Gordon Gecko was good at what he did. The people running our big corporations, especially in the auto industry, do not appear to be cut from the same cloth as Lee Iococca. The Peter Principle is in full swing in corporate America.
The bottom line is that the ideology of the Republican Party, which is that government cannot be a solution to our biggest problems, ignores the severity of our predicament while showing zero compassion for those who are suffering most in this downturn. I don’t think they actually believe tax cuts will do anything more than give them a campaign slogan in the next election. It’s what they’re against that counts here. They honestly believe that the private sector can police itself and make the right decisions for America. They think that making the rich richer will ultimately raise up the bottom 95% of the country because rich people are the heart and soul of our economy (forget that wages haven’t gone up in this country for the last 15 years). They harp on the concept that only the private sector can create real wealth, when the country’s economy has just struck an iceberg. To clarify the situation for them, the stimulus bill was never intended to create wealth. It is intended to keep our nation afloat. A very small percentage of the population is worried about creating wealth right now. The rest of us are going to remember the way the Republican Party has handled this process.
Bi-Partisanship: It Was a Nice Idea, But…
It was a pleasant dream, but still just a dream. That members of the House and Senate would work together, setting aside their ideologies and petty projects so they could do what was right for the country instead of voting along party lines or pandering to local constituencies and friendly lobbyists. When Judd Gregg withdrew his name from the nomination for Commerce Secretary, it signaled the GOP’s absolute unwillingness to work with anybody who has an opposing point of view. He didn’t withdraw because he suddenly realized that he and President Obama have different economic philosophies. Obama has talked openly about the need for a big stimulus package since long before January 20th. After having pursued the job by querying Obama staffers about a position in the Cabinet, he pulled out because he was being leaned on by the RNC, which smells blood in the water. Its own blood. Gregg turned down a big pay-raise and a prestigious seat in the Presidential Cabinet because he was being treated like a traitor and threatened by his fellow Republicans. The man is a coelenterate. The Party has no conscience.
The Republican Party is in the process of forming a circular firing squad. Unfortunately, the middle class is sitting right in the middle of that cross-fire. Nobel Prize-winning economists were lining up to support the stimulus package, with some even saying it was too small, yet the GOP financial wizards who were responsible for getting us into this debacle were predicting the doom of capitalism and rise of socialism if the bill was signed into law. These are many of the same people who supported Phil Graham’s legislation back in 1999 which all but eliminated any regulation of the banking industry. These were the same “free marketers” who insisted that corporations would always do the right thing. Then ENRON collapsed. These are the intellectual giants who presided over a national debt that went from a billion dollar surplus to trillions of dollars in the red in a matter of six short years. Did a few democrats enable some of that behavior? Of course, but the fiscal policies of the Bush Administration and the anti-regulation ideology of the Republican Party built the foundation of sand upon which our economy was expanding.
Hopefully, Obama has learned a sad, yet important lesson in the last month. He must realize by now that the Republican party is driven exclusively by ideology, rather than by pragmatic reasoning. When he hears United States senators apologizing to a radio talkshow host for criticizing his “I hope Obama fails” remark, Obama must know that he is dealing with people who are bent on obstructing anything that he tries to do, regardless of how much damage it might to do the country. He’s dealing with ideologues who think that tax cuts alone will save the economy from catastrophe, even though a study of the last tax cut showed that it had no measurable impact on the economy. He’s dealing with people who led the charge for last year’s government hand-out, which failed to do anything for the people who received those checks in the mail. He’s dealing with people who are looking for their next campaign slogan, rather than useful solutions to the terrible problems we face.
Obama will always be a civil negotiator. That’s his nature. He appears to be a guy who rarely if ever loses his cool. But he needs to take the gloves off and make it clear to the American people what he is dealing with on Capitol Hill. Between now and 2012, the GOP’s circular firing squad will lock and load, and the Republican Party will, for all intents and purposes, cease to exist as a viable national party. We can only hope that it won’t succeed in taking the middle class with it.
Is the stimulus package “pork”?
In terms of dollars spent, perhaps 1% of the proposed stimulus package fell into the category of ‘pet projects’ that some House democrats wanted to piggy-back onto the bill. Nancy Pelosi has to accept responsibility for allowing that foolishness–she seems a little drunk with power now days and Obama needs to take her to the woodshed and explain that her arrogance is sabotaging a lot of the good will his election generated for the Democratic Party.* But most of the things that GOP wanted cut from the House and Senate bills were smart, multi-purpose solutions that would have created jobs and, at the same time, kept several states from going bankrupt. The cuts in education are particularly difficult to understand, given that they would have generated jobs and, at the same time, improved the quality of our children’s education. That and many other useful items were cut from the Senate bill because the GOP chose to play a dangerous game of chicken with the Obama administration, holding the bill hostage while demanding a ransom of tax cuts and less spending.
Here is the sad fact about tax cuts: they’re a joke for 95% of us.
Tax cuts routinely add up to a net increase of just a few dollars per paycheck, in the process of depleting an already anemic Treasury. The stimulating effect of tax cuts on the national economy is virtually undetectable. But, what Republicans are looking for here isn’t an actual solution to the economic free-fall we’re in anyway. They just want a campaign slogan for the next election. Their ideology, rather than any expertise in economics, tells them that the marketplace has to go through these “cycles” now and then, and that the government should do nothing. The reason for this is because the “government” is evil and, therefore, anything it does will only make things worse. Again, this is an ideological, rather than economic point of view. The vast majority of people with advanced degrees in economics couldn’t disagree with it more.
A lot of people are very angry about the way the GOP has held the stimulus package hostage, forcing the administration to cut much needed items that would have created jobs and repaired our crumbling infrastructure. States are cutting essential services, and California isn’t even sending out tax refunds for the first time in the state’s history. The argument that tax cuts are going to pull us out of this vertical nose-dive is sheer idiocy. And, leading that debate is a solemn-faced John McCain, having graduated 895th in his Naval Academy class of 899 midshipmen with zero understanding of economics. This intellectual giant has recently announced that President Obama’s stimulus package is just a big spending bill which he cannot support. The man is marching like a lemming toward the edge of a cliff, along with the rest of his party.
In the next election, the GOP is going to be eliminated as viable national political party. We can only hope that their short-sighted, self-serving ideology doesn’t drag the country into a Depression before that happens.
*NOTE: I have recently been accused by some language nazis that my “woodshed” remark here is sexist and that it represents an implied endorsement of violence against women. ‘Taking someone to the woodshed’ is a common metaphor that is gender neutral. Now, if I had said that Obama should take Nancy Pelosi to the Lincoln Bedroom, they might have had a point.
JohnRJohnson 