We blog as the announcement of the conference committee's agreement on the stimulus bill is first making its way through the media, swiftly offering SWNIDish analysis of that which we have barely seen.
To wit: it could have been worse.
Reports are that the bill has reduced spending, increased tax cuts and eliminated sweet sounding but superfluous stuff like school construction, all at a slightly more modest price tag. OK: it definitely could have been worse.
But we'll insist that it could have been a lot better with minimal spending and permanent cuts in tax rates for corporations and individuals. Reagan veteran Peter Ferrara had it right in today's WSJ: history shows that tax cuts are the surest way to restore growth in a recessionary economy. By increasing the rewards of productivity, tax cuts channel investment and risk taking in productive areas of the economy. To be genuine incentives, they can't be temporary tax rebates, which folks tend to hoard because they are by definition followed by the restoration of old rates.
Less good but still better than what we've got would have been Larry Summers's targeted, timely and temporary initiatives. These are broad, slowly implemented, and long lasting.
The present stimulus remains a laundry list of Democratic Party pet projects, with spending for everyone who belongs to the diffuse coalition of special interests that controls our federal government and most states. That's what people voted for; that's what they've got.
5 comments:
Please allow a moment of political pedantry. There can be no such thing as a tax cut which doesn't correspond to an equal budget cut or equivalent tax raise. Furthermore, I don't think there can be such a thing as a tax cut when the Fed is in debt. In reality these tax cuts are are high interest tax deferrals—at least, that is, assuming that we are ever actually going to pay that off rather than just riding the slope of inflation all the way to economic dissolution. I understand the point that in theory it's simply feeing up capital to inject into the economy thus raising taxable income in the future. I'm still not convinced that this will work at this point, but I'm more concerned with the way we conceptualize this "bailout" or "stimulus" package (whichever presumptuous title you decide to assign to it). It would be a shame if people from now on mistook these tax cuts which are not actually tax cuts with the real thing.
This sums up my opinion about it.
http://site.despair.com/images/despairWear/pages/255_main
-Mike
Bryan, your point is cogent, but we think that several larger issues apply. One is that over time, lower tax rates tend to increase tax revenues. Another is that economic growth over time minimizes the impact of debt. The relevant examples are exactly the ones cited by Ferrara.
There's another factor, that lowering tax rates is perhaps the only way to induce a measure of discipline in federal spending.
I appreciate the fundamental logic of it, it's just doubtful whether or not it will actually work enough to justify the move.
Secondly, I'm not sure that both lowering taxes and making a massive increase in federal spending could in any way be seen as a measure of discipline (if I'm missing something, please let me know). But as far as I can see it's simply government increasing spending but instead of raising taxes to pay for it they borrow/print the requisite dough.
Look, I'm all in favor of tax cuts, but I'm also in favor of doing something about the fact that 48% of Americans pay no federal taxes whatsoever—a margin projected to increase to 51% by 2012. It seems to me, though, that the only reasonable tax cuts can only come after 1) tax reform 2) massive budget cuts to make room for 3) a dedicated effort to take federal debt under 10% annual GDP.
To have tax cuts—and not just the momentary, targeted sort but the sort that then the GOP pushes to "make permanent" in some sort of twisted nod to the Gingrich era—without a balanced budget and without doing anything towards paying back the national debt and while chucking around trillions of dollars in discretionary spending (be it via war or "stimulus") is, to me, the pinnacle of fiscal silliness.
Now, I know that I'm no economist, just principled. These "tax cuts" taste sweet on the lips like capitalism, but our sour in the stomach like socialist statism.
We largely agree with your sentiment, but observe that debt doesn't so much need to be paid down as kept under control. A federal debt that remains constant or declines as a percentage of the GDP is we think a more sensible and perfectly safe goal, and we think that history demonstrates as much.
We aren't Keynesian (we aren't an economist either), but we do think that in a deflationary environment, liquidity needs to be added to the economy. One way of seeing the present crisis is that there is less money in the system than there way, and it needs to be added to rebalance. The addition can be with tax cuts, government spending or both. The virtue of tax cuts is that the spending is more productive on average.
The trick is getting the amount right, so that we don't inflate the currency.
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