I'm still getting my mind around the "stimulus package" gearing up on Capital Hill. Here are a few early thoughts and contrathoughts
Sen. Arlen Specter (Pa.), who gave Vice President Biden a 17-page list of spending requests, said he opposes the proposed increase in funding for Pell Grants for college students because it would do little to spur short-term economic growth.
I resemble that remark as a college prof; college spending is a long-term proposition, since it gives us a better-equipped workforce if we're doing our jobs. Having people go to school less and work more would increase GDP... in the short term.
However, encouraging going to college in a recession is a good idea, since that will give the unemployed and underemployed something constructive to do. In finance, we preach looking at the long-term, focusing on maximizing shareholder value/wealth rather than this quarter's net income, for there are numerous ways (cutting R&D, cutting advertising, cutting quality control) to help the bottom line in the short term that trash the firm in the long term.
True, you won't get as good of a multiplier effect on the Pell Grants, since most of the money will go to schools who are on fixed budgets that will be slow to change. However, it might be a good long term-move for maximizing national value (if I could conjure up such a critter, but as a semi-pro economist, I can conjure up a lot) even if it the help comes years rather than months off.
House Minority Leader John A. Boehner (Ohio) said the plan lacks enough "fast-acting tax relief," such as a temporary halt to payroll taxes and more relief for businesses.
Is The Onion writing your scripts? Here's my modest ad proposal-
Try PhantAids, your pro-growth economic relief. Unlike Democratic econ-antacids that take years to take effect and leave you bloated, PhantAids goes straight to the bottom line in seconds. PhantAids, long memory, fast relief.
A payroll tax cut would help most businesses, even ones that aren't making money at present and have the advantage of encouraging job creation. When you tax something, you get less of it all else being equal, and taxing wages means you get less wages. I'd make it ongoing rather than temporary, so as to encourage job creation rather than give businesses a one-shot cash infusion, but that makes more sense than a corporate income tax cut if the goal is to increase jobs.
Why? Income tax cuts only help if you have income. For instance, an income tax cut will help someone like GM very little, since they have a huge amount of losses to carry forward and won't get to see any added cash flow from the tax cuts for years. Likewise, other struggling firms that are either barely breaking even or losing money will only benefit if they can hang in there long enough to turn a profit. There would be a mild stimulative effect on struggling firms if successful firms have lower taxes and start plowing the savings into extra investments, but if lower taxes translate into lower prices for those firms, it might make it harder for the struggling firms to hang in there.
For some reason, corporate income tax cuts now seem a bit like social Darwinism, giving the successful firms a boost while letting the struggling firms fend for themselves. Creative destruction, I hear the guy in the back right say. Right said, but could we get by with a bit less destruction.
Recent Comments