New stimulus package is 60% waste
Now that we have entered 2009, the time for details has begun. President Obama has now stated that he intends to make 40% of the proposed stimulus plan, that was championed by Speaker of the House Nancy Pelosi from $50 billion to its now $800 billion level, business tax-cuts. That is the first logical and reasonable thing I've heard about this plan since its inception.
Some $300 billion dollars will target businesses by cutting taxes on new workers hired and accelerated depreciation among other thoughts. The tax break from hiring new employees is critical. Tax on employees is one factor that cannot be controlled by an owner and is devastating to the bottom line. If this proposal, which is short-term, could be made more substantial - by being proposed long-term or matched by a cut in corporate taxes - it will have a definite impact on the economy. But that is not thinking like a liberal Democrat.
If President Obama goes to his consistent style of thought, and Speaker Pelosi is able to forge ahead with her plans, we will see more of the compartmentalized thinking that dominated the election speeches. That is the thought that there is no connection of one economic plan with any other part, nor that new deficit widening spending or raising taxes might counter any other stimulus proposed. Listening to the Democratic leaders one would believe that each of these things are isolated and do not interact, but in the real world they always do.
Thus if corporate taxes are raised, any gains created from a tax break on new employees will evaporate and those new hires will quickly become unemployed again. But it will buy the politicians a few months of back-patting on the lowering of unemployment.
But the majority of the new stimulus plan is still solidly in the realm of polispeak. Only in that realm is the thought that $500 for singles and $1000 for a family able to turn around a mortgage crisis, credit crunch, and shrinking economy.
The last stimulus plan, which was completely ineffective, came about as a direct payment of money from the Government to the public - which will be repaid in taxes at a later date. That money was used by the majority of Americans to stave off mortgage default and pay down on debt. This time President Obama believes that by directly cutting payroll taxes for 4 months it will have a bigger impact. Which is perhaps even more dream-like an expectation.
That equates to around $120 per month, or $240 for families -
"The $500 tax credit would apply to the first $8,100 of wages, meaning a worker who earns $24,400 a year and is paid twice a month would get about $60 extra per paycheck for four months."While that is not insignificant, it is not a factor either. If the average person in America has $6,000 in debt currently, and basic monthly costs of some $1500 to live the extra money is 1 night out, or 2% payment on the debt not including interest, or 1 month of cell phone service. Which seems most likely for a person to do?
From what I have heard across the nation a free month of phone service, or paying down on the auto insurance, or electric bill, or catching up with the cable bill, or having a bit of extra food, or paying on the car loan, or replacing clothing are higher priorities than going out for drinks and a dinner. Sure some may buy an new video game, but they may well be doing so because they will be losing cable and thus the game is their only entertainment.
The fact is that stimulus plans that depend on creating money to give to the public, that will need to be paid back via taxes, will never work. Unless the nation were to get $6,000 per person it will never work. The current individual debt and the interest on that debt is too high. And any amount below the current debt load is too small to invest in anything - even if consumer confidence were there.
This stimulus plan is a failure just as much as the one proposed by the Bush Administration was. There is no improvement. There is no greater gain. Money given to the public will garner no positive lasting effect in the economy any more than the last one did. The only thing that will happen is the polispeak will be positive for a time. Great for politicians, but ultimately bad for the public.
If this stimulus were to be a real fix, corporate taxes would be reduced, new employees would create a tax break, accelerated depreciation would be tied to new equipment purchases, and Government would not be directly involved in the daily actions of private business. But that too is a pipe dream. Just like watching the Dow go above 9000 any time soon.