Sunday, April 26, 2009

If Stimulus Checks Worked, Wouldn’t They Have Worked in 2008?

If this current Administration is really concerned about current and future deficits and the exploding national debt, why are they offering a one-time “tax cut” to 85% of workers in the first place? For at least 50% of the taxpayers receiving this refund, it is not a refund, we are sending them money that: 1) they never paid in income taxes this past year or for about the last 5 years or so; 2) which has been borrowed from your kids and grandkids; and 3) which will not stimulate the economy here in the US.

For someone who believes that tax cuts do stimulate marginal economic activity, doesn’t this opposition to any tax cut sound more than a little but confused?

The problem I have had over the years of so-called ‘supply-side economics” is that many of the proponents of such ‘easy’ political actions (who hates tax cuts?) are the same people who have avoided cutting the rate of growth in all spending in the federal government. They honestly believed, and I heard them say with their own mouths, that ‘cutting taxes will generate so much revenue growth that we will be able to out-grow the growth in federal spending, including in all entitlements’.

I would cite that as an exact quote but I would have to footnote it about 100 times and it would be a mess to do so.

Ladies and gentlemen: Those guys were right in theory but wrong in practice. Cutting tax rates or giving back stimulus tax checks work to help balance federal budgets only when coupled with strident spending rate increase controls and reforms. Cutting tax rates usually means some net increase in tax revenues to the federal government because of the new economic activity it produces, mostly in the form of higher employment. However, unless the rates of growth in spending are curtailed in everything from defense to Medicare, that increase in tax revenue has never out-run the growth rates in federal spending, mostly caused by the rampant 15%+ annual growth rates in two federal health care programs, Medicare and Medicaid. [1]

So that is the charade and shell-game that was played by many conservative politicians over the past 2 decades, as well as a few Democrats. The only time the conservatives backed up their words with some solid actions was during the 1990 Budget Act when firm PAYGO limits were enacted for the first time on federal budgets and in 1997 when the Clinton Administration compromised with the Republican Congress to produce the only 3 years of budget surpluses in most of our lifetimes.

And they were mostly guys who advocated pure tax cuts unconnected to spending reductions. So ladies, you can take pride in your elected female leaders during the 1980’s and 1990’s. In fact, one of the toughest members of the House Budget Committee in terms of deficit-control during the time Congressman Alex McMillan served as the leadership appointee to the committee was now-Senator Olympia Snowe of Maine. We all marveled at the time she took on Congressman Barney Frank of Massachusetts one day in committee during a markup and nearly handed his head to him on a silver platter.

These ‘stimulus checks’ should do a pretty good job of stimulating the economy, though….in China, that is. What will many people do with their $400 or $800 tax cut or stimulus checks? They might pay down some debt or buy some necessary items like food or clothes but will any of them buy an iPod, iPhone or 42” plasma TV set? Where are those items made? Here in the United States? Try China or some other southeast Asian country.

Isn’t this just really pandering to the nth degree? We tried a similar ‘economic stimulus’ package under President Bush in early 2008 when he and Congress decided in their infinite wisdom to send $800 checks to taxpayers. Jimmy Carter tried a similar thing. Did it work? I don’t seem to be able to recall the events of the past year for some reason….did we avoid falling into the largest economic recession since 1930?

Politicians always push the tax cut button when they are trying to confuse the public and satiate them when they are trying to get their broader agendas passed. Karl Marx was wrong; he should have said: “Tax cuts are the opiate of the masses”.

This current bribery effort by the Obama Administration will cost about $100 billion this year. On top of the maybe $100 billion we spent last year. Is this paid for by spending cuts or tax increases elsewhere in the budget? Nope. Where is it coming from? Your children and grandchildren as always in the form of debt borrowed against their future earnings.

Kiss them tonight and tell them that you love them very much. Because they simply won’t believe it in about 15 years based on what we are doing to them now.


[1] http://www.telemachusleaps.com/2009/04/there-is-no-such-thing-as-draconian.html

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