tax cuts

Andrew Sullivan Blames Tea Party for Budget-Busting Deal That He, Not It, Supported

by Hans Bader on January 21, 2011

in Deregulate to Stimulate, Economy, Employment, Politics as Usual, Sanctimony

The deficit is largely the result of “feel-good” bipartisan policies supported by the political establishment. But rather than taking credit for the deficit it helped to create, the liberal establishment blames it on political outsiders like the Tea Party who have little influence over public policy. Sometimes, the Tea Party is accused of supporting policies it had nothing to do with.

Writing at his blog at The Atlantic, liberal journalist Andrew Sullivan recently faulted the “Tea Party” for the recent budget-busting deal between Obama and congressional leaders that exploded the deficit by extending tax cuts, unemployment benefits, and government handouts: “immediately after the election, moreover, they did a deal borrowing a huge amount more and adding $700 billion to the debt.”

The irony is that Sullivan, one of Obama’s biggest cheerleaders, had earlier endorsed that very deal, a deal also endorsed by other liberal media like the Washington Post because of the government handouts it contained. In an explanation that was hard to follow, Sullivan said that this new “stimulus package financed by borrowing” would somehow create “the best context for serious reform” of the nation’s finances, providing a “big new stimulus” that would help Obama “as he moves toward re-election.”

By contrast, some Tea Partiers publicly opposed the deal. A Wall Street Journal article quotes a Tea Party activist and Senate candidate saying that “she decided to run after watching Congress pass legislation during this month’s lame duck session, including a package of tax cuts, that added to the national debt.”

Most Tea Party bloggers took no position on the deal. The few that did either opposed it or reluctantly supported it as the best one could expect from a government that would still be dominated by liberals in the next Congress (with Democrats controlling both the White House and the Senate).

I criticized the deal in a blog post that was reproduced at a blog called “Freedom Action“” that includes many Tea Party members. It drew no objections from any blogger or reader at that site (which has more than 300 members). I noted that the billions it will spend on extending unemployment benefits won’t stimulate the economy, but will financially burden states. 30-40 state unemployment funds are already insolvent or teetering on the edge, thanks to past federal extensions of unemployment benefits. Giving people unemployment benefits for years on end discourages people from taking lower-paying jobs, and results in some recipients gaming the system. It encourages people not to relocate in search of work, and not to take productive jobs that they think are beneath them, even if those jobs are the only jobs that they will realistically find once their jobless benefits come to an end, because of the disappearance of the type of job they once performed.

As the Heritage Foundation notes, “The consequences of extended unemployment benefits are some of the most conclusively established results in labor economic research. Extending either the amount or the duration of UI benefits increases the length of time that workers remain unemployed. UI benefits subsidize unemployment. They reduce the incentive unemployed workers have to search for new work and to make difficult choices–such as moving or switching industries–to begin a new job.” (The deal also contains other disincentives to work.)

Admittedly, the deal is not as economically-destructive as some of the measures that Obama previously pushed through Congress on party-line votes, such as the $800 billion stimulus package, which actually shrank the economy in several ways. (The stimulus used “green-jobs” subsidies to send American jobs overseas. 79 percent of those subsidies went to foreign firms, such as an Australian firm that imported Japanese wind turbines, effectively outsourcing American jobs. It also wiped out jobs in America’s export sector.)

Stimulus Bill Lacks Bold Ideas for Reform

by Cord Blomquist on January 20, 2009 · 1 comment

in Deregulate to Stimulate, Economy, Stimulus to Nowhere

USATODAY.com reports that the stimulus plan has swelled to $850 billion but lacks the bold ideas that are needed for the economy to truly recover.  As USA Today reports:

Obama had proposed an economic stimulus package that aides, including adviser David Axelrod, estimated at $775 billion, nearly 40% of which would be taken up by tax cuts, including a $3,000 job-creation tax credit.

The tax cuts are a good start, but that leaves 60% of the proposal composed of spending programs.  The spending programs are a mixed bag, but many of the suggested programs set a high price on job creation.  A program to modernize Social Security sets the price of job creation at $1 million per job.  Other programs attack the employment issue by hundreds of thousands of dollars to create just one job.  These aren’t the kinds of “shovel-ready” programs that we heard were designed to help the middle class.

When you compare these high-dollar program to other proposed expenditures, like highway projects, you see that the bill isn’t really focused on getting the most bang for our buck.   The highway projects included in the bill would create jobs at roughly $35,000 a piece.  If Mr. Obama and Democratic leaders in Congress want to achieve their goal of job creation, they ought to be focusing on creating the most jobs per dollar and cut the fat from this proposal.

Meanwhile, Republicans on the Hill are proposing that the tax cut portion of the bill be expanded.  As USA Today’s coverage also reports:

The Republican Study Committee, a group of fiscally conservative GOP House members, released a proposal Wednesday that includes trimming individual tax rates by 5% and cutting the top corporate tax rate from 35% to 25%.

While this is a better proposal than a multi-billion-dollar spending spree, it lacks the boldness needed during this crisis.

Granted, politicians are comprise-seeking creatures, but this proposal seems particularly meek when the US is staring at the worst financial crisis since Herbert Hoover was in office.  Someone needs to let the economy out of the chains that Washington has put on it and let America start working again.

Cutting the corporate tax rate to 0% would be the ideal as it would usher in an era of jobs flooding into America, rather than crossing our border to the south and fleeing toward cheaper labor in Asia.  This is likely to be politically untenable, but perhaps a cut down to 15% would be possible now.  It would put the United States on equal ground with Ireland, Europe’s fastest growing economy, and still reverse the trend of job flight.

Perhaps the most overlooked and most important thing we could do to help the economy would be to engage in a systematic program of deregulation.  Mr. Obama could defy political expectations by creating a BRAC Commission for regulations.

BRAC, Base Closure and Realignment Commission was designed to take the politics out of closing military bases.  Because local economies grow around military bases, it became political suicide for Congressmen to vote for base closings in their district or State.  This stalled progress in shutting down any bases, creating incredible headaches for our nation’s military, which needs to be able to shift its resources when needed.  BRAC was created to decided what bases would be closed and then to present the bill to Congress, which it would then have to vote either up or down, with no amendments.

The same local interests are often involved in regulations.  One state might benefit from a regulation on steel makers because it produces aluminum.  Similarly, mountains of compliance paperwork can often benefit large companies because it prevents small competitors from ever getting started—the little guys don’t have the lawyers and accountants needed to comply with Washington’s regulatory nightmares.  Representatives and Senators know that businesses benefit from regulations, and they’ll work to see that other regulation get repealed before those that help their constituents.

We can get around this political reality  by creating a deregulatory commission that would pour through the federal register and would then recommend large slates of regulations to be cut.  Just like BRAC, this comission could  force Congress to vote Yes or No.

Deregulation wouldn’t result in income loss for the federal government, it would clear the books of many dead-weight, no-gain rules, and would get the economy chugging along more efficiently.  This is exactly what America needs.  This, combined with lower income taxes and a much lower corporate tax rates, would be a far greater stimulus—and less open to corruption and playing favorites—than the spending boondoggle now before law makers in Washington.

Stimulating Who, Exactly?

by Iain Murray on January 13, 2009

in Environment, Stimulus to Nowhere

Great point by Carter Wood over at the excellent Shopfloor blog of the National Association of Manufacturers. Building on my point at NRO about the tension between infrastructure projects and existing regulation, Carter says:

There is good reason to fear that any significant project that promotes both quick economic investment and long-term competitiveness — say, modernizing and expanding the nation’s electrical grid — will immediately be hit by litigation lasting years and years and years. In which case the only thing being stimulated is the fundraising drives of alarmist, anti-growth environmental groups.

The plain fact is that any so-called stimulus that relies on infrastructure projects has to contain a significant deregulatory element. Of course, environmental groups will be able to raise money whatever happens, whether because “polluting” projects are given the go-ahead or because regulations they have fought tooth-and-nail for are lifted. It should be apparent, therefore, that if the President-elect wants to avoid conflict with environmental groups that he has so far rewarded with at least 5 major appointments, he should choose another route for the stimulus than the Keynesian infrastructure route, such as individual and corporate tax cuts. In the end, however, if he wants infrastructure improvement – whether initiated by government or the private sector – deregulation is almost a necessary price to pay.

Or he could attempt to live with government funding and regulatory delay, and hope the taxpayer will be willing – and able – to bear the cost…