Wednesday, February 11, 2009

Redistribution of Income is Not a Stimulus

Congressional Democrats and the President have confused relief and redistribution of income with stimulus. Presumably, the point of all of this is to get somebody to hire someone. Getting the government to hire someone just requires passing a law and spending money. That part is easy. How do you get a businessman or a private company to hire workers? That is what stimulus is supposed to accomplish, is it not?

What does the Obama package do? It provides relief to middle and lower income folks and old folks (regardless of need). In order to do this it imposes taxes on present and future generations of taxpayers. Since wealthy folks pay most of the taxes in the US, this is basically a redistribution of wealth and income. Does it provide stimulus? If you are a family having trouble paying your bills and making your mortgage payment and the government gives you a $ 1,000, what would you do? Presumably, you would pay down the most pressing bills. The last thing you would consider is to spend this money on something...debt repayment is the name of the game for families in trouble, not embarking on a consumption binge.

While helping people in trouble is a nice thing to do, it has nothing to do with stimulating the economy. Imagine that President Obama and the Congress agreed to cut corporate income taxes in half starting in 2011 and lasting until 2016. That announcement would cost a fraction of the current stimulus bill (indeed, it might cost nothing) and would provide dramatic incentives for business to hire new employees and embark on investment designed to pay off in 2011 and beyond. It would cost no tax dollars in 2009 and 2010. This is stimulus. What Obama and the Democrats are doing has nothing to do with stimulus.

Instead once this Obama plan is spent, there will be a demand for another. Redistribution schemes creates their own new constituencies. The economy meanwhile will have less money available for private investment, businessmen will be demoralized (and, of course, demonized by President Obama and the Congress). Businesses, after Obama and the Democrats put "card check" into place, will hire fewer employees, abandon expansion plans and many will simply close up shop. Some stimulus!

President Obama doesn't seem to be able to utter the words "tax cut" without saying "tax cuts for the rich." This is how he sees the world. It is clear that Obama despises folks that pay taxes and absolves his own supporters of the obligation to pay them (witness: Tim Geithner, Tom Daschle). This Administration does not like private enterprise and free markets and Obama shows his contempt for the private sector on every occasion. Not surprising for someone who learned everything he knows about the private sector listening to Harvard law professors.