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A Stimulus Bill with 40% in Tax Cuts Won’t Do the Job

So, the Wall Street Journal is reporting that part of the Obama "stimulus" plan is $310 billion in tax cuts for businesses and individuals. If this is the plan, I’m going to predict right now that the stimulus won’t be sufficient.

Some of the proposed tax cuts are relatively efficient and progressive, such as an increase to earned income credit. Others, like retroactive tax cuts to businesses, and tax cuts for businesses that "create" jobs, aren’t. I say this because a lot of that job creation will be fictional. Take some temporary or contract workers or outsourced jobs, and roll them back in—that’s what most of the jobs created will be, not real new jobs. Not to mention the fact that the tax code is so full of holes right now that money rebated by the government will simply be siphoned off by corporations to dividends, off shore havens or executive compensation.

You don’t pour money into a bucket with a hole in its bottom, and you don’t punch more holes the bottom either.


I’ve long observed that the only economic policy that Obama really really believes in is tax cuts. During the election, even when no one really cared, he would keep repeating, over and over and over again, that he was going to cut taxes.

The problem is that giving money to people without pricing power (most middle and working class people) is pointless. People with pricing power, like health care providers, credit card companies (who can and will raise rates) and employers (who will take into account that their workers are now taking home more money and thus don’t need as much from them) will simply take the money away. And at this time workers and ordinary consumers just don’t have pricing power.

Likewise corporations are not going to create real new jobs if there’s no demand. Who wants to invest into this economy? This isn’t an economy where you hire new people, it’s an economy where you take any money you’ve got and you use it to buy up distressed competitors and properties at generational lows. Then you rationalize your new acquisition with your own company by laying people off. We’ve just spent the past few months watching this play out in the banking industry, heavily subsidized by the government, now we’re going to have to watch the government subsidize buyouts of non-financial companies. If at first giving money to corporations (banks) doesn’t work, why not try it with even more companies?

Stimulus at this time should not be tax cuts, it should be spending. Rewire the country’s energy infrastructure, make every building energy efficient, rebuild roads, build high speed train corridors on the west and east costs, then connect them to each other. Give cities money to build the trams or subways they’ve been wanting to build. Push high speed internet out to everyone, and at the same time increase its speed to international standards (i.e. 10x as fast as the crappy "high" speed internet North Americans get). Move to single-payer healthcare and buyout the health insurance companies. Extend UI to 12 months, and create a bunch of programs that folks can work in as was done in the Great Depression.

Spend money and that money will create demand—for all the products needed for all those projects, for the workers to build all the trains, rail lines, roads, power lines, high speed internet, and so on. And you won’t just be giving money away to be spent in all the same ways that got us where we are, you’ll be refitting the economy. The key thing that hasn’t got through the thick skulls of the elites is that the old economy didn’t work for the majority of people. It was broken. Even the "prosperity" which the elites had (and they did, they are richer than they have been in a century) was fake—it was based on profits that didn’t exist. Wall Street’s losses weren’t losses, they were the revelation that every profit they made for the last 10 years was fake and based on fraud.

The economy needs to be restructured, and that means spending on restructuring, not giving money to people to spend in the same patterns as they did before. That doesn’t mean no money shouldn’t be given out, it should. Relief for those who need help should be generous, but the majority of money shouldn’t go to handouts, it should go to creating a new America and creating jobs that Americans can work in to help create that new America.

The past 30 years have been tax cut after tax cut. And they have led us here. The solution is not more tax cuts, no matter who they’re meant for. It’s to stop thinking that tax cuts are the solution, or that "high" tax rates are the problem. They aren’t, low tax rates are the problem. The US has cut its tax rates into the verge of a depression. And the solution the geniuses, like Larry Summers, who brought us this disaster, are proposing is more tax cuts? More of the same?

I said the other day that predicting what would happen economically this year would be harder than predicting economic matters in the Bush era, because presumably the Obama administration wouldn’t be so ideologically blind and stupid as the Bush administration.

I hope I wasn’t wrong, but after reading this, I’m beginning to think I may have been. As I’ve said for a long time, personnel matters, and Summers and most of the key economic advisers simply are not liberals and do not understand liberalism any more than Obama does. Even when they try and do something liberal, like a large stimulus, they wind up acting like half-baked Chicago school acolytes.

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Ian Welsh

Ian Welsh

Ian Welsh was the Managing Editor of FireDogLake and the Agonist. His work has also appeared at Huffington Post, Alternet, and Truthout, as well as the now defunct Blogging of the President (BOPNews). In Canada his work has appeared in and BlogsCanada. He is also a social media strategy consultant and currently lives in Toronto.

His homeblog is at