You can say that the problem is taxes are too low or that spending is too high, but the problem is that you can't have both. This stimulus bill is a lot of both.
OK, there is simply too much debate going on here to really cover all the basis, so I'm going to focus on just one thing that I saw a little confusion about - Spending != Stimulus.
It is ridiculous that anyone would even need to argue this. Perhaps it's this bent everyone seems to have towards supply side economics, but the reality is that demand is a more necessary component of price than supply in many cases (this is because supply flows to where the demand is, demand does not go to where the supply is in general). Consider if you have 10,000 really awesome desktop computers to sell, what are they worth. It'll be a very different number in USA where electricity is freely available than in the middle of the Amazon rain forest.
If the government spends money on anything, even if it's wasteful spending, it will increase demand (though perhaps not as much as what's being lost) and thus will stimulate the economy by encouraging supply.
So, let's go back to the basic problem. The problem is not what our economic output will be during the recession. Imagine if economic output were always 20% lower than it was over the last five years, you could work 32 hours a week; your food and ipod might cost a little more relative to your income, but your housing would be about the same. It really wouldn't be terrible. In fact, 25 years ago total GDP was much lower than it is today and nobody found that dire.
So, the problem isn't economic output exactly, but rather the massive swings in that value. Imagine running a business where every year your revenue swung up or down by 40%. It would be impossible. In the good years, you would need to hire more workers, they would get 8 months to learn their jobs, and then you'd have to lay them all off the next year. In such a business, you'd really be better off saving some of your excess profit in the good year and spending it to keep making payroll in the bad year.
That's essentially the entire goal of this (and every) stimulus package. Accept you are incurring debt (better to have saved a surplus from the good times though) and smooth over the bad times with a little extra spending. Let's say GDP in 5 years has actually dropped to a new permanently lower plateau than it is at today. If all we can do is smooth that drop, it is probably worth it. Just the extra cash we bring in over those five years by not letting the economy be quite as badly decimated is probably worth $1T.
All that said, while I don't see how we can not try a stimulus package at this point in time, I highly doubt it will work. Just the holes in bank balance sheets appear to be 3x the size of this stimulus package. We would probably need a $4T stimulus package to significantly reduce the recession we are heading into. I just don't see that happening (at least not quickly enough), so my overall thoughts are it is inevitable even with this bill. I'm just holding out hope that enough of it goes into infrastructure, research & development, education, green energy initiatives that 10 years from now we can come out of this with the wind at our backs instead of in our faces.
"In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan's Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations."
"In the end, say economists, it was not public works but an expensive cleanup of the debt-ridden banking system, combined with growing exports to China and the United States, that brought a close to Japan's Lost Decade. This has led many to conclude that spending did little more than sink Japan deeply into debt, leaving an enormous tax burden for future generations."
The rest of the article in lots of quotes from economists all contradicting each other.
This is probably correct (more or less). Here's a bold proclamation by me: anyone who says this spending will avert or fix the recession is lying to you. We should be honest with each other that the goal of the stimulus is to slow the impact of the crash, not prevent it.
A couple of days ago, Tim posted the Big Reset on the front page. This will happen, pretty much regardless of what we do (I suppose if China and Japan just granted amnesty for all our debt it might be averted for the time being...), but it could play out in more painful manners or relatively less painfully. The problem, is that maneuvering around mine fields takes time, time we don't have right now.
Let's look at the first $350B we've spent. It hasn't stopped anything. It made the stock market bounce through Christmas (inexplicably as we had a terrible retail season), but here we are again in desperation. But, it did do one thing. It bought us some time. Time the banks spent announcing more right-offs and making the unknown losses just a little bit less unknown, all in a more or less orderly manner.
If it takes another $1T to ensure that our system unwinds in a relatively orderly crash as opposed to a sudden and violent crash, that is absolutely money well spent. As much as I want the price of my future house to collapse, I'd like to keep the money in my bank account safe while it's happening.
And it's the worst of both worlds. Huge amount of money, but so emasculated that it probably won't achieve it's objective.
Yuck.
So, wait... if the $150 billion that was cut was the the only part of the bill that was going to be effective at preventing economic armageddon, why didn't we just start with a bill that was limited to those portions?
I used to like Schiff. He was a reasonably good and early opponent to the status quo when it became clear a few years ago that we were heading straight for economic collapse. But his answers to how to weather the storm haven't been particularly excellent. Anyone who followed his advice to diversify outside the US markets was hit for losses far in excess of the measly 30%-40% people sitting heavy in US equities lost.
So, is he right about the stimulus? Don't know. I think his arguments for hyperinflation are not well substantiated right now though.
If it takes another $1T to ensure that our system unwinds in a relatively orderly crash as opposed to a sudden and violent crash, that is absolutely money well spent. As much as I want the price of my future house to collapse, I'd like to keep the money in my bank account safe while it's happening.
Well put. Then again, that money *does* have to be paid back someday, with interest, assuming the beneficiaries waste it.
If it takes another $1T to ensure that our system unwinds in a relatively orderly crash as opposed to a sudden and violent crash, that is absolutely money well spent. As much as I want the price of my future house to collapse, I'd like to keep the money in my bank account safe while it's happening.
Well put. Then again, that money *does* have to be paid back someday, with interest, assuming the beneficiaries waste it.
I expect to pay it back with interest. And I expect most of it to more or less be wasted, especially the newer crappier version of the bill with tax cuts (proven unsuccessful) replacing spending.
Look at it this way, over the last 8 years our total national debt (including entitlement programs) has soared by something like $13T. And for what? This $1T might be (probably is) wasteful, but at least it'll be wasteful in a well intentioned kind of way as opposed to what we've had for so long.
All that said, while I don't see how we can not try a stimulus package at this point in time, I highly doubt it will work. Just the holes in bank balance sheets appear to be 3x the size of this stimulus package. We would probably need a $4T stimulus package to significantly reduce the recession we are heading into. I just don't see that happening (at least not quickly enough), so my overall thoughts are it is inevitable even with this bill. I'm just holding out hope that enough of it goes into infrastructure, research & development, education, green energy initiatives that 10 years from now we can come out of this with the wind at our backs instead of in our faces.
Well said RCC.
It will probably cost upwards of $1T to upgrade our electrical grid so that we can utilize wind, solar, and other alternative fuels effectively. It looks like this package has $10-15B to start it. I recall an article stating that with the cost of the first 3 months of the Iraq war, we could have built a 75 square mile solar array in Nevada that would power the entire country*. Interesting, but irrelevant because we have no way of moving that energy around efficiently.
(* Not sure on the exact numbers, but it was something like that.)
Our roadways have been neglected for decades, many interstates have been largely unchanged since the 1950s/60s. It looks like maybe $45B is going for this, which, for those of you who've followed the Viaduct and 520 Bridge projects, is barely a drop in the bucket.
The FAA plans on spending $40B to upgrade the air traffic control system in the US... over the next 20 years. This would be an example of a project that could be accelerated rapidly in this stimulus bill, put a lot of Americans to work (since most of the contractors would be the usual suspects - Boeing, Northrop, etc), increase the efficiency of air travel (benefiting travelers and our airlines immensely), and all these benefits would be reaped for years to come.
Instead the bill is loaded with tax credits, many of which encourage things we shouldn't be encouraging... like poor people having more kids. And tax cuts ($500/person?) which don't help the people that need the most help. I don't need $500 back, but the millions of people who got layed off sure could use some help in the form of a job. Haven't 8 years of seeing the "benefits" of tax cuts been enough to realize they don't help? It's not like we're taxing at 70% like we were in the 70s.
Ugh. Sadly, I find myself on the sides of the GOP trying to ambush this mess. Obama made the point that a stimulus package is about spending, but there's not enough of it in this bill.
The tax cuts don't really matter, because they will raise them later anyway or else people will refuse to buy T-bills. In the meantime, letting people keep more of their own money will let them make purchases and thus generate jobs to get people out of unemployment. If the government insteads just taxes and then hands out the money, it doesn't create jobs and simply reduces people's motivation to make the sometimes difficult adjustments to their life to find a new spot in the economy.
The tax cuts don't really matter, because they will raise them later anyway or else people will refuse to buy T-bills. In the meantime, letting people keep more of their own money will let them make purchases and thus generate jobs to get people out of unemployment. If the government insteads just taxes and then hands out the money, it doesn't create jobs and simply reduces people's motivation to make the sometimes difficult adjustments to their life to find a new spot in the economy.
You simply don't understand the situation. Tax cuts won't "allow people to keep more of their own money", it'll just allow them to make larger payments on what they owe. Nobody is spending, and lower taxes simply don't matter right now. The fed wrote me and everyone else a $600 check last spring, and very few people ran out and spent that.
Basically, your plan to spur spending by lowering taxes is the exact BS that got us into this mess. I don't much love the stimulus bill, but it's closer to an actual plan than anything I've heard from the Republicans in 6 years.
You can argue, as the plan's opponents have, that the package spreads itself too thin by going after stimulus and investment, or you can argue that, by mixing the two, the plan tries to diminish short-term pain while setting the economy on a new, productive track. I'd go with the second argument myself.
5. If you want to stimulate an economy, which is better: a tax cut or an increase in government spending?
The answer is a rousing "it depends."
...
Right now, if you're trying to build the most effective stimulus package, the data argue that more tax rebates and cuts should go to people we're sure will spend it -- because they need it for necessities -- and that any package should include a big dose of government spending because, again, we're sure the government will spend and not save. U.S. consumers have flipped over into savings mode.
This is what I, WestSideBilly, and biliruben have been trying to point out to the "tax break or nothing crowd". Sure, a tax break to those in poverty will help (they need clothes!) and food stamps might help more (make them eat instead of paying off debt). But if you move up the tax brackets much you end up with little or no bang for your buck.
"Nobody is spending, and lower taxes simply don't matter right now."
The savings rate is up to 3.6%, which is high by recent standards, but in spite of all the hype and scare tactics, the overall economy is only a few percent off of recent highs. While some people will spend it immediately, others may be saving up for something later. While that saving won't help in this recession, to be fair you have to give people the money on an equal basis. So to get the desired effect, you have to gross up the expected marginal savings rate.
If you have the government spend the money directly, then there will inevitably be waste, fraud, and abuse. To get the desired effect in that case, you have to gross up by waste. I would rather allow for expected savings than expected waste, even if it is a greater amount needed. The saved money will be put back into the treasury anyway, and it is not wasted, provided that every person is treated equally.
Of course well thought out infrastructure mega-projects would be the best, but there just aren't enough of those that have been planned out, and rushing through the planning could end up with waste or worse, as in the case of badly built bridges, etc.
Why wouldn't the actual planning be considered stimulus as well? In other words, why does everyone imagine stimulus as a bunch of dudes digging a ditch? Why can't it first be architects, accountants and engineers planning the project?
Our government is preparing to pass something called a stimulus package. According to the experts, this stimulus package won't directly stimulate much of anything in the short term, when we need it. But with any luck it will bamboozle a hundred million morons into thinking their government did something useful, and that in turn will cause them to become more confident and spend additional money on cigarettes and lottery tickets, thus stimulating the economy.
The funny thing about this scheme is that it might work. The other funny thing is that no one is trying to hide the fact that the entire plan depends on bamboozling the aggressively ignorant portion of the population. We need to get those bozos spending again, and if it requires a fraudulent stimulus package to get it done, most people seem okay with that.
...
Our past economic booms depended heavily on morons. Those wonderful stimulators of the economy had to buy stock in perpetually unprofitable tech companies, or invest in real estate after it was clearly overpriced. Every economic boom is powered by the clueless. I see no reason why the next one should be different, except that the government is doing the bamboozling this time.
Not saying I agree with him (or that I don't). Just thought it was amusing.
This is what I, WestSideBilly, and biliruben have been trying to point out to the "tax break or nothing crowd". Sure, a tax break to those in poverty will help (they need clothes!) and food stamps might help more (make them eat instead of paying off debt). But if you move up the tax brackets much you end up with little or no bang for your buck.
If you have the government spend the money directly, then there will inevitably be waste, fraud, and abuse. To get the desired effect in that case, you have to gross up by waste. I would rather allow for expected savings than expected waste, even if it is a greater amount needed. The saved money will be put back into the treasury anyway, and it is not wasted, provided that every person is treated equally.
Of course well thought out infrastructure mega-projects would be the best, but there just aren't enough of those that have been planned out, and rushing through the planning could end up with waste or worse, as in the case of badly built bridges, etc.
As rose said, the planning phase is just as important in terms of stimulus. And I think you'd be surprised at the number of projects that are basically ready to go. The various DOTs across the country have hundreds of billions, if not trillions, of dollars of projects that could be started within 6 months. Seattle is exceptionally dysfunctional in this sense, but most other major cities and states have extensive long term plans for their major roads, highways, interstates, bridges, etc. It's simply a matter of money and resources (materials, trucks, workers, etc).
And of course there will be "waste". But what is "waste"? It's usually in the form of unnecessary jobs, purchases of goods that aren't needed or don't get used, and similar things. Those all have the same stimulating effect. It's not as targeted, but it's not like you're flushing money down the tube like you would be by giving it to people so they can buy Chinese made crap they don't really need.
Washington State is boosting its unemployment payments.
The best tax cut would be directed towards creating real jobs that won't disappear like morning dew once the handouts stop. Allowing people to spend the money will create the same jobs that will be there when the economy recovers. Extra government infrastructure jobs will go away, but its a valuable skill and it will benefit the future economy. Almost no one is opposed to stimulus spending on those, but they just can't find enough such work that is ready to go, no matter what you may think of Washington DOT.
The problem is the extra spending that will create a large number of people whose livelihood will depend on keeping the stimulus jobs going even after is no longer needed or affordable, because no one would spend money on that stuff other than to facilitate pumping money into the economy. Giving money to people for doing nothing at all accomplishes the same stimulus, and is just as valuable as spending it on things we don't need. Reducing taxes disburses as much money, but it reduces the cost of labor and thus makes it more economical to hire people and thus creates jobs.
Washington State is boosting its unemployment payments.
The best tax cut would be directed towards creating real jobs that won't disappear like morning dew once the handouts stop. Allowing people to spend the money will create the same jobs that will be there when the economy recovers. Extra government infrastructure jobs will go away, but its a valuable skill and it will benefit the future economy. Almost no one is opposed to stimulus spending on those, but they just can't find enough such work that is ready to go, no matter what you may think of Washington DOT.
The problem is the extra spending that will create a large number of people whose livelihood will depend on keeping the stimulus jobs going even after is no longer needed or affordable, because no one would spend money on that stuff other than to facilitate pumping money into the economy. Giving money to people for doing nothing at all accomplishes the same stimulus, and is just as valuable as spending it on things we don't need. Reducing taxes disburses as much money, but it reduces the cost of labor and thus makes it more economical to hire people and thus creates jobs.
Not everyone can work in R&D. Some people were just meant to be bagging groceries or stocking shelves. There is no shame in that, just the reality of the how natural intelligence is handed out in a distribution.
Washington State is boosting its unemployment payments.
For how long? How is that being paid for? Part of the stimulus was going to be directed to states to ensure they could maintain their safety net programs. A large portion of it was hacked out of the Senate version of the bill.
The best tax cut would be directed towards creating real jobs that won't disappear like morning dew once the handouts stop. Allowing people to spend the money will create the same jobs that will be there when the economy recovers. Extra government infrastructure jobs will go away, but its a valuable skill and it will benefit the future economy. Almost no one is opposed to stimulus spending on those, but they just can't find enough such work that is ready to go, no matter what you may think of Washington DOT.
The problem is the extra spending that will create a large number of people whose livelihood will depend on keeping the stimulus jobs going even after is no longer needed or affordable, because no one would spend money on that stuff other than to facilitate pumping money into the economy. Giving money to people for doing nothing at all accomplishes the same stimulus, and is just as valuable as spending it on things we don't need. Reducing taxes disburses as much money, but it reduces the cost of labor and thus makes it more economical to hire people and thus creates jobs.
But I would argue that we DO need major infrastructure spending at every level - roads, highways, interstates, rail, airports, electricity production and transport, mass transit, schools, hospitals, etc. You do make a valid point about the fact that the jobs going away as the projects are finished. However, I don't see how a tax cut is going to create jobs in the near term or any more permanently. As soon as the tax cut expires, we're back to square one, but with no wide scale benefit. If anything, a tax cut will lead to spending on things we don't need.
As soon as the tax cut expires, we're back to square one, but with no wide scale benefit. If anything, a tax cut will lead to spending on things we don't need.
Not only are the tax cuts going to expire, overall taxes are going to shoot up to pay for all this intentional waste. That's why businesses have stopped hiring. Because tax rates will be going way up it means businesses can only afford having people for the most critical positions. Rather than face the expense of hiring and then terminating position when taxes go up, they are just reducing spending.
Critical infrastructure projects that boost productivity avoid that problem, because they help businesses earn enough to pay future taxes. Since that criterion is not being used, and the more immediate "shovel ready" criterion is used instead, taxes will go up but future productivity will not keep up, which means future standard of living goes down while we pay back the debt or suffer under the inflation of printed money.
Reducing taxes simply allows the politicians to say they passed a trillion dollar stimulus plan, while only doing less damage to the economy than a full trillion of wasteful spending would do.
That's why businesses have stopped hiring. Because tax rates will be going way up it means businesses can only afford having people for the most critical positions. Rather than face the expense of hiring and then terminating position when taxes go up, they are just reducing spending.
I must have missed the announcement about massive tax increases that prompted Boeing and Microsoft to lay off 20,000 people. Do you have a source for that?
So, Jon, why would a business use tax CUTS to create jobs when there is no DEMAND for what they produce to justify hiring in the first place. When they are struggling to survive, either in reality or in their own mind, what incentive do they have to give that up? NONE.
As has always been the case, tax CREDITS can actually have the effect of encourging job creation (especially R & D), in areas you can then specifically target.
In this stimulus package, I see direct subsidies and tax rebates/reductions, being used in place of tax credits far more often. Allowing businesses to claim credit for any contrived or real losses for the past 5 years will not create any jobs.
A good "stimulus" package would provide for dumping those businesses that cannot make it on their own and repurposing them to provide jobs and economic benefit in the future. This is NOT socialism, it's called developmental capitalism, and it's how Capitalism was redirected in Teddy Roosveldt's era.
If you just continue to prop up bad CDO's, Credit Swap paper, bad mortgages, rather than letting it flush itself out of the system, and starting the "stimulus" with a clean slate, you are not effectively dealing with the problems it creates.
Deflation is only bad for speculators and those who have grown inescapably dependant upon a bubble econony, IMO. Cash will be the new credit, so to speak, actually back up credit (capital), for a CONSUMER-oriented economy, and all the better to stimulate a little demand by the little guy.
Comments
It is ridiculous that anyone would even need to argue this. Perhaps it's this bent everyone seems to have towards supply side economics, but the reality is that demand is a more necessary component of price than supply in many cases (this is because supply flows to where the demand is, demand does not go to where the supply is in general). Consider if you have 10,000 really awesome desktop computers to sell, what are they worth. It'll be a very different number in USA where electricity is freely available than in the middle of the Amazon rain forest.
If the government spends money on anything, even if it's wasteful spending, it will increase demand (though perhaps not as much as what's being lost) and thus will stimulate the economy by encouraging supply.
So, let's go back to the basic problem. The problem is not what our economic output will be during the recession. Imagine if economic output were always 20% lower than it was over the last five years, you could work 32 hours a week; your food and ipod might cost a little more relative to your income, but your housing would be about the same. It really wouldn't be terrible. In fact, 25 years ago total GDP was much lower than it is today and nobody found that dire.
So, the problem isn't economic output exactly, but rather the massive swings in that value. Imagine running a business where every year your revenue swung up or down by 40%. It would be impossible. In the good years, you would need to hire more workers, they would get 8 months to learn their jobs, and then you'd have to lay them all off the next year. In such a business, you'd really be better off saving some of your excess profit in the good year and spending it to keep making payroll in the bad year.
That's essentially the entire goal of this (and every) stimulus package. Accept you are incurring debt (better to have saved a surplus from the good times though) and smooth over the bad times with a little extra spending. Let's say GDP in 5 years has actually dropped to a new permanently lower plateau than it is at today. If all we can do is smooth that drop, it is probably worth it. Just the extra cash we bring in over those five years by not letting the economy be quite as badly decimated is probably worth $1T.
All that said, while I don't see how we can not try a stimulus package at this point in time, I highly doubt it will work. Just the holes in bank balance sheets appear to be 3x the size of this stimulus package. We would probably need a $4T stimulus package to significantly reduce the recession we are heading into. I just don't see that happening (at least not quickly enough), so my overall thoughts are it is inevitable even with this bill. I'm just holding out hope that enough of it goes into infrastructure, research & development, education, green energy initiatives that 10 years from now we can come out of this with the wind at our backs instead of in our faces.
http://www.slate.com/id/2210570/
http://www.nytimes.com/2009/02/06/world ... wanted=all
The rest of the article in lots of quotes from economists all contradicting each other.
This is probably correct (more or less). Here's a bold proclamation by me: anyone who says this spending will avert or fix the recession is lying to you. We should be honest with each other that the goal of the stimulus is to slow the impact of the crash, not prevent it.
A couple of days ago, Tim posted the Big Reset on the front page. This will happen, pretty much regardless of what we do (I suppose if China and Japan just granted amnesty for all our debt it might be averted for the time being...), but it could play out in more painful manners or relatively less painfully. The problem, is that maneuvering around mine fields takes time, time we don't have right now.
Let's look at the first $350B we've spent. It hasn't stopped anything. It made the stock market bounce through Christmas (inexplicably as we had a terrible retail season), but here we are again in desperation. But, it did do one thing. It bought us some time. Time the banks spent announcing more right-offs and making the unknown losses just a little bit less unknown, all in a more or less orderly manner.
If it takes another $1T to ensure that our system unwinds in a relatively orderly crash as opposed to a sudden and violent crash, that is absolutely money well spent. As much as I want the price of my future house to collapse, I'd like to keep the money in my bank account safe while it's happening.
And it's the worst of both worlds. Huge amount of money, but so emasculated that it probably won't achieve it's objective.
Yuck.
:P
Peter Schiff: Stimulus Bill Will Lead to "Unmitigated Disaster"
I used to like Schiff. He was a reasonably good and early opponent to the status quo when it became clear a few years ago that we were heading straight for economic collapse. But his answers to how to weather the storm haven't been particularly excellent. Anyone who followed his advice to diversify outside the US markets was hit for losses far in excess of the measly 30%-40% people sitting heavy in US equities lost.
So, is he right about the stimulus? Don't know. I think his arguments for hyperinflation are not well substantiated right now though.
Now apparently he has had his PR flacks posting the "Peter Schiff was right" videos all over the internet.
Good post from Mish on this a couple weeks ago.
http://globaleconomicanalysis.blogspot. ... wrong.html
Wow. That directed at me?
no LHR - I meant actual flacks.
edit - like this
http://www.youtube.com/watch?v=2I0QN-FYkpw
I expect to pay it back with interest. And I expect most of it to more or less be wasted, especially the newer crappier version of the bill with tax cuts (proven unsuccessful) replacing spending.
Look at it this way, over the last 8 years our total national debt (including entitlement programs) has soared by something like $13T. And for what? This $1T might be (probably is) wasteful, but at least it'll be wasteful in a well intentioned kind of way as opposed to what we've had for so long.
Well said RCC.
It will probably cost upwards of $1T to upgrade our electrical grid so that we can utilize wind, solar, and other alternative fuels effectively. It looks like this package has $10-15B to start it. I recall an article stating that with the cost of the first 3 months of the Iraq war, we could have built a 75 square mile solar array in Nevada that would power the entire country*. Interesting, but irrelevant because we have no way of moving that energy around efficiently.
(* Not sure on the exact numbers, but it was something like that.)
Our roadways have been neglected for decades, many interstates have been largely unchanged since the 1950s/60s. It looks like maybe $45B is going for this, which, for those of you who've followed the Viaduct and 520 Bridge projects, is barely a drop in the bucket.
The FAA plans on spending $40B to upgrade the air traffic control system in the US... over the next 20 years. This would be an example of a project that could be accelerated rapidly in this stimulus bill, put a lot of Americans to work (since most of the contractors would be the usual suspects - Boeing, Northrop, etc), increase the efficiency of air travel (benefiting travelers and our airlines immensely), and all these benefits would be reaped for years to come.
Instead the bill is loaded with tax credits, many of which encourage things we shouldn't be encouraging... like poor people having more kids. And tax cuts ($500/person?) which don't help the people that need the most help. I don't need $500 back, but the millions of people who got layed off sure could use some help in the form of a job. Haven't 8 years of seeing the "benefits" of tax cuts been enough to realize they don't help? It's not like we're taxing at 70% like we were in the 70s.
Ugh. Sadly, I find myself on the sides of the GOP trying to ambush this mess. Obama made the point that a stimulus package is about spending, but there's not enough of it in this bill.
You simply don't understand the situation. Tax cuts won't "allow people to keep more of their own money", it'll just allow them to make larger payments on what they owe. Nobody is spending, and lower taxes simply don't matter right now. The fed wrote me and everyone else a $600 check last spring, and very few people ran out and spent that.
Basically, your plan to spur spending by lowering taxes is the exact BS that got us into this mess. I don't much love the stimulus bill, but it's closer to an actual plan than anything I've heard from the Republicans in 6 years.
I bought an XBox.
I agree with essentially everything he says.
Most pertinent to this discussion is item #5
This is what I, WestSideBilly, and biliruben have been trying to point out to the "tax break or nothing crowd". Sure, a tax break to those in poverty will help (they need clothes!) and food stamps might help more (make them eat instead of paying off debt). But if you move up the tax brackets much you end up with little or no bang for your buck.
The savings rate is up to 3.6%, which is high by recent standards, but in spite of all the hype and scare tactics, the overall economy is only a few percent off of recent highs. While some people will spend it immediately, others may be saving up for something later. While that saving won't help in this recession, to be fair you have to give people the money on an equal basis. So to get the desired effect, you have to gross up the expected marginal savings rate.
If you have the government spend the money directly, then there will inevitably be waste, fraud, and abuse. To get the desired effect in that case, you have to gross up by waste. I would rather allow for expected savings than expected waste, even if it is a greater amount needed. The saved money will be put back into the treasury anyway, and it is not wasted, provided that every person is treated equally.
Of course well thought out infrastructure mega-projects would be the best, but there just aren't enough of those that have been planned out, and rushing through the planning could end up with waste or worse, as in the case of badly built bridges, etc.
A tax break won't help the unemployed.
As rose said, the planning phase is just as important in terms of stimulus. And I think you'd be surprised at the number of projects that are basically ready to go. The various DOTs across the country have hundreds of billions, if not trillions, of dollars of projects that could be started within 6 months. Seattle is exceptionally dysfunctional in this sense, but most other major cities and states have extensive long term plans for their major roads, highways, interstates, bridges, etc. It's simply a matter of money and resources (materials, trucks, workers, etc).
And of course there will be "waste". But what is "waste"? It's usually in the form of unnecessary jobs, purchases of goods that aren't needed or don't get used, and similar things. Those all have the same stimulating effect. It's not as targeted, but it's not like you're flushing money down the tube like you would be by giving it to people so they can buy Chinese made crap they don't really need.
Washington State is boosting its unemployment payments.
The best tax cut would be directed towards creating real jobs that won't disappear like morning dew once the handouts stop. Allowing people to spend the money will create the same jobs that will be there when the economy recovers. Extra government infrastructure jobs will go away, but its a valuable skill and it will benefit the future economy. Almost no one is opposed to stimulus spending on those, but they just can't find enough such work that is ready to go, no matter what you may think of Washington DOT.
The problem is the extra spending that will create a large number of people whose livelihood will depend on keeping the stimulus jobs going even after is no longer needed or affordable, because no one would spend money on that stuff other than to facilitate pumping money into the economy. Giving money to people for doing nothing at all accomplishes the same stimulus, and is just as valuable as spending it on things we don't need. Reducing taxes disburses as much money, but it reduces the cost of labor and thus makes it more economical to hire people and thus creates jobs.
Not everyone can work in R&D. Some people were just meant to be bagging groceries or stocking shelves. There is no shame in that, just the reality of the how natural intelligence is handed out in a distribution.
For how long? How is that being paid for? Part of the stimulus was going to be directed to states to ensure they could maintain their safety net programs. A large portion of it was hacked out of the Senate version of the bill.
But I would argue that we DO need major infrastructure spending at every level - roads, highways, interstates, rail, airports, electricity production and transport, mass transit, schools, hospitals, etc. You do make a valid point about the fact that the jobs going away as the projects are finished. However, I don't see how a tax cut is going to create jobs in the near term or any more permanently. As soon as the tax cut expires, we're back to square one, but with no wide scale benefit. If anything, a tax cut will lead to spending on things we don't need.
Not only are the tax cuts going to expire, overall taxes are going to shoot up to pay for all this intentional waste. That's why businesses have stopped hiring. Because tax rates will be going way up it means businesses can only afford having people for the most critical positions. Rather than face the expense of hiring and then terminating position when taxes go up, they are just reducing spending.
Critical infrastructure projects that boost productivity avoid that problem, because they help businesses earn enough to pay future taxes. Since that criterion is not being used, and the more immediate "shovel ready" criterion is used instead, taxes will go up but future productivity will not keep up, which means future standard of living goes down while we pay back the debt or suffer under the inflation of printed money.
Reducing taxes simply allows the politicians to say they passed a trillion dollar stimulus plan, while only doing less damage to the economy than a full trillion of wasteful spending would do.
I must have missed the announcement about massive tax increases that prompted Boeing and Microsoft to lay off 20,000 people. Do you have a source for that?
No? Didn't think so.
As has always been the case, tax CREDITS can actually have the effect of encourging job creation (especially R & D), in areas you can then specifically target.
In this stimulus package, I see direct subsidies and tax rebates/reductions, being used in place of tax credits far more often. Allowing businesses to claim credit for any contrived or real losses for the past 5 years will not create any jobs.
A good "stimulus" package would provide for dumping those businesses that cannot make it on their own and repurposing them to provide jobs and economic benefit in the future. This is NOT socialism, it's called developmental capitalism, and it's how Capitalism was redirected in Teddy Roosveldt's era.
If you just continue to prop up bad CDO's, Credit Swap paper, bad mortgages, rather than letting it flush itself out of the system, and starting the "stimulus" with a clean slate, you are not effectively dealing with the problems it creates.
Deflation is only bad for speculators and those who have grown inescapably dependant upon a bubble econony, IMO. Cash will be the new credit, so to speak, actually back up credit (capital), for a CONSUMER-oriented economy, and all the better to stimulate a little demand by the little guy.
Then I woke up... shock: