- Obama is considering lowering employer payroll taxes in order to spur hiring, does it make sense to turn around and raise other taxes on these same companies?
- Diane Feinstein is quoted as admitting this will mostly help "largely unskilled people who need a manufacturing-type job". Since this stimulus plan would have to be "paid" for, there will be a dollar for dollar transfer of cash from productive & skilled members of society (business owners, corporations and shareholders) to largely unproductive members of society. Does this sound like a way to create wealth to you? Taking money that could be invested in new businesses and instead giving it to people to fill a ditch or patch a pothole?
- Infrastructure projects are not self-sustaining. Once the road is patched or bridge is done, you need to find more funding from taxpayers for the next project. Conversely, when you spur investment in new businesses, you actually have a chance to CREATE wealth and jobs. Long term, that is the only way our economy is going to get out of the current mess we are in, by new industries sprouting up and creating jobs for people who will end up working in careers that may not even exist yet. 15 years ago, there was no Google and no Facebook. If the Internet boom had not happened, where would all those people be working? Some extremely bright people might not be employed at all or might be wasting their lives working for some regional telephone company at some dead end job.
- From a GDP growth perspective, this proposal makes no sense, will probably not help and might even lower GDP. According to Obama's old Chair of the Council of Economic Advisers, Christina Romer, the multplier on tax changes is 3, so if you raise taxes by 1%, GDP will fall by 3%. How much is the multiplier on government spending? According to Robert Barro, the Nobel Prize Winning economist, it is about 0.6-0.7. If an economy is really weak, the multiplier goes up by 0.1 per 2% in unemployment. So even at 12%, the multiplier is 1, one third of the tax multiplier. Even if you don't like Robert Barro, other economists seem to point to a government spending multiplier of 1.4-1.5, still half the tax multiplier. So in the end, this plan might end up costing us growth and because of that, jobs.
- The last infrastructure based stimulus plan spent $1.3 million per job created, does that really seem to be a good use of cash right now? $862 billion was spent to create 659,000 jobs. If you assume this infrastructure plan will be as successful as the last one, that means this plan might only create 76,450 jobs! That is not growth, it's barely a mild swelling.
Friday, June 10, 2011
Senate Democrats Want to Raise Taxes to Fund More Infrastructure Based Stimulus? Are They Insane?
Democratic Senate stalwarts like Tom Harkin, Jay Rockefeller and Ken Conrad are all promoting another infrastructure based stimulus plan that would be funded by raising taxes on corporations (aka "closing loopholes"). I think I nearly fell out of my chair when I read this. Are they completely meshuga? There are so many things wrong with this proposal, I really don't know where to start. But let me try anyway: