Stimulus III more of the same
For five days this month, Barack Obama was right about economic policy.
At his jobs summit last Thursday, the president spoke atypically plainly about whether Washington can quickly stimulate the economy by spending money on roads and bridges.
He noted that “what is good long-term may not necessarily work as an immediate, short-term stimulus,” and that “the term ‘shovel ready’… doesn’t always live up to its billing.”
On Tuesday, however, Obama announced a new, multibillion-dollar spending package designed to help us “spend our way out of this recession.” The plan includes a reported $50 billion for — wait for it — infrastructure.
He had it right the first time. We may need some new roads and bridges, but these are not short-term economic boosts. In any case, infrastructure accounted for less than 10 percent of a bill that was sold in large part as a “reinvestment” package that would pay dividends for decades. In Atlanta, these “investments” include planting trees along downtown sidewalks.
The new stimulus would spend nearly twice as much on infrastructure as the last stimulus included — you know, the measures whose impact Obama played down last week.
The only lesson learned at the White House, it seems, was not to call it a “stimulus” this time.
But infrastructure is not the only dead end in this plan. Home-weatherization incentives, for example, are more of an energy policy than a way to jump-start the broader economy.
A couple of Obama’s measures might spur small businesses to invest. These include an extension of these firms’ ability to expense immediately some investments, as well as a one-year elimination of the capital gains tax for investments in small companies (though committing to keeping the current top rate of 15 percent for all investments would have a larger positive economic impact).
There’s also a tax credit for small businesses that hire workers next year. But it’s not as promising as it sounds.
A one-year tax break for an investment in, say, equipment makes sense: You’re only going to buy a particular item once. Few employers, however, will be fooled by a one-year credit for adding a (one hopes) permanent position.
That’s a bet that many firms won’t want to make, given the disincentives for hiring that Democrats are pushing: a health-insurance mandate and cap-and-trade, among other bills. Worries about the cost of complying with future regulations are the main reason firms large and small are hesitant to hire.
It also appears that the short happy life of Obama the Deficit Hawk is over.
Incredibly, the president says we can afford his plan because we haven’t spent $200 billion of the money tabbed for the Troubled Asset Relief Program for banks, or TARP. Some reports on the Obama plan have described this $200 billion as a “windfall” that gives him the flexibility to spend more money.
By this logic, an indebted couple who negotiate new mortgage terms for their house, staving off foreclosure and reducing their debt by tens of thousands of dollars, now have a “windfall” to go spend on a new car.
This is money that we anticipated borrowing over the long term. Now we don’t need it. And even with this $200 billion reduction, the administration still expects the TARP to have a net loss surpassing $140 billion.
Instead of limiting the loss by retiring some debt, the administration wants to sink TARP money into projects that will never be “repaid” in actual dollars.
All this, and Obama had the gall Tuesday to reject the “false choice” between trimming the budget deficit and paying for Stimulus III. In fact, this is precisely the choice we face here.
The president said he’s still committed to halving 2009’s $1.4 trillion deficit by the end of his term. If so, that process must start now, with this $200 billion.
Note: This text has been edited since the original posting to clarify the point about the capital gains tax.
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91 comments Add your comment
Jess
December 9th, 2009
7:17 pm
Kyle,
The exemption on capital gains for small business is basically a sham. Typically, small businesses do not pay capital gains taxes. Since capital gains apply only to investment income on products which appreciate, and not to inventory items which are resold for a profit, it’ really just a farce. How many small businesses do you know who invest after tax dollars in the stock market or real estate. I assure you not many.
Kyle Wingfield
December 9th, 2009
8:04 pm
Jess: Thanks for your comment…it made me realize I’d left out two words in that sentence…this would apply to investments in small businesses, to help them add capital. Obviously there’s an important difference between the two. I’ve clarified that in the text now.
F. Sinkwich
December 9th, 2009
8:10 pm
Jess, another leftie genius.
Repealing the capital gains tax encourages investment, which means jobs.
We should reduce corporate taxes as well, which would do the same thing.
But moonbats like Jess can’t stand investors or anyone else who might actually make some meaningful money creating jobs.
Jess
December 9th, 2009
9:31 pm
F. Sinkwich,
I’m not sure what you read into my comment, but I am the most conservative person you’ll ever meet. I’m retired and make my living investing. My point was that small businesses do not incur capital gains therefore the tax break is a sham. Read it again, carefully.
Jess
December 9th, 2009
9:47 pm
Kyle,
Now you changed the wording, my comment seems a bit disconnected. Oh well.
oldimer
December 9th, 2009
10:14 pm
I call all this switch and tax.
Intown Lib
December 9th, 2009
10:52 pm
It’s interesting how “conservatives” suddenly care about deficits again. Of course, none of this mattered when George Bush squandered Clinton surpluses with massive tax cuts instead of paying down the national debt.
Gerald West
December 10th, 2009
6:06 am
Kyle, if you look around you’ll see that the bailout agreed on by President Bush, and cadidates Obama and McCain is working better than expected. Banks are lending again and the stock market is recovering. The economic stimulus is also working better and sooner than anyone should have expected: the slide into a 1930s-style depression has been halted and the GDP is starting to grow. Anyone who expected a 12 month recovery from a $22 trillion blowout is a fool.
The paradox of economic recession and depression is that there is much work to be done to rebuild the economy, but people cannot find jobs. The reasonable approach is to employ people in capital improvements that will sustain the economy long enough to begin paying off the cost of the investment. The stupid approach is to borrow to pay unemployment benefits to sustain those who are not working. It’s better to subsidize infrastructure than unemployment!
Your dislike of Obama and Democrats are prejudices that cloud your rationality. Clear-eyed reason is more noble than sordid politics. Try it sometime!
dewstarpath
December 10th, 2009
6:49 am
Sinkwich –
Jess is giving her expertise on a subject.
That doesn’t make her a “moonbat”.
Do the Math
December 10th, 2009
7:30 am
Good work. Only thing is a republican president would spend the residual money as well, probably stimulating the military by buying bombs.
Tall
December 10th, 2009
7:47 am
Intown Lib:
The “Clinton Surpluses” are a myth. The excess in the Social Security Trust Fund was “borrowed” every year he was in office. Therefore, there was no “surplus.” The Clinton “surplus” arrived via a boom in the new interenet technologies that expanded hiring and a windfall in revenues from decreased capital gains taxes(via Bush I). Clinton’s budget cuts only applied to the military. To his credit, he did try to reform welfare and did pass the NAFTA bill. If you have anything to add, I’d love to read it.
Reckless fiscal policies have long been of concern to me. The last fiscally responsible administration in office was that of Herbert Hoover. Politicians of both stripes never give thought to eradicating the waste. The good news about the mess we are facing is that it can be rectified. It will take pain and discipline, but it can be done.
Road Scholar
December 10th, 2009
8:05 am
” You’re only going to buy a particular item once.” Not if you are expanding your business or have to reinvent your company due to market and technology shifts!
As for infrastructure, projects selected for the first infrastructure stimulus were shovel ready, thus the design, environmental clearances, and right of way acquisition had to be complete. Those projects “on the shelf” were limited due to reduced state and federal revenue available. Design on many projects had stalled do to lack of revenue. That shelf is nearly empty now, especially with the second waive of projects being funded for construction this spring.
Some projects were road widenings or new location. Some were local “tree planting” (which included sidewalks and bike paths also) projects that were championed by certain ongoing programs and the local governments. Most were projcts already in the pipeline waiting on funding. They were just accelerated.
With the shelf nearly empty, new projects, in various states of design completion are now being prepared that could use these new monies. Like the previous batch they will cover a myriad of needs and desires. They are already in the TIP/STIP, the short term list of prioritized projects identified for implementation. The availaability of this money, and future “regular” monies contained in the transportation bill yet to be renewed (ususally a 6 year bill)will spur job growth and the need for our businesses to hire and address the needs of those projects. Money from infrastructure projects touch businesses , emloyees and future employees. The money turns over 7 times by the chain of purchases and wages paid. Thus they have a “domino” impact to different segments of society.
And the bonus is that we have real improvements to mobility and the environment that we live in!
Democrats are Corrupt
December 10th, 2009
8:35 am
The 50 billion will go to franchiser who sell to operators the right to use the name of their brand and their methods of operation in a given location. This money will be a gift to the franchiser, and a complete loss to the government and the individual franchisee. The highest loss category for the SBA is to the small business person buying a franchise operation. The result of Obama’s jobs program will be more bad debt, more government bailouts, more democrat corruption.
Peter
December 10th, 2009
8:36 am
Funny stuff Kyle…the mess Obama was left with has been getting cleaned up slowly.
I guess when your party is not in charge invading other country’s to the tune of Trillions, you are upset !
Gregg
December 10th, 2009
8:36 am
Kyle,
How can you argue the infastructure when you look around Atlanta? On just about every highway and byway there is some sort of construction going on. This is being paid for by the stimulus bill. Without it many local governments would not have the funds needed to complete or even start these projects. With these many people have jobs to go to rather than being unemployed when the housing market slumped.
You say monies may never be repaid however this is the money that is being invested in in GOVERNMENT! I don’t understand how you complain when we are investing in government (which is basically the people) rather than bailing out corporations.
Democrats are Corrupt
December 10th, 2009
8:44 am
Jess, I incur lots of short term capital gains, I typically buy a position in the morning, and sell in the afternoon. I usually do not hold any position more than a few weeks. Does the Obama proposal offer to eliminate short term capital gains for the small stock trading business? That would be pure profit for me.
Road Scholar
December 10th, 2009
8:49 am
DaC; With that blog name, I wouldn’t hold my breath!
Ward
December 10th, 2009
8:54 am
Thanks, but I WAS concerned about Bush’s unchecked spending. But Obama has taken GWB’s $500 billion deficit and turned it into $1.4 TRILLION in one year… and is looking to add to that. This is untenable, and will eventually lead to inflation and currency devaluation. And he’s doing this while making speeches (his only real talent) decrying the very deficits he’s creating. This is how stupid he thinks we are… or at least, how stupid his constituency is.
Ward
December 10th, 2009
8:55 am
Kind of like accepting the Nobel Peace Prize while escalating the war in Afghanistan. He’s more than happy working both sides of the street.
Chris Broe
December 10th, 2009
9:26 am
Kyle Wingfield is just now beginning to understand the power of words to incite near riots in a chat room. If Bookman had been the host, he would have chosen sides in the polite misunderstanding above and the comments would have gone full Aaron Burr. (like it does 24/7 365 on his blog)
That’s why the 500+ daily posts on Bookman’s blog come from the same five or six wordsmiths.
Jklol
Democrats are Corrupt
December 10th, 2009
9:37 am
Road Stinker: Tax deductions and credits are available to all regardless of political party or political bashing history. You must be of the “Black Persuasion” to believe that Obama could deny me a capital gains exemption that he gives to other in the same situation based solely on my contempt for his policies. Too much “dash” is required to do business with Atlanta black crooks, imho.
jconservative
December 10th, 2009
9:50 am
The CBO said the FY 2009 deficit was $1.2 trillion the day Obama was sworn in as President. It ended as $1.4 Trillion.
The problem is the Reagan formula for economics. Tax cuts & increased spending. This is the same formula Obama has followed to date. He cut taxes but is increasing spending. The only way out of the national debt hole the US is in is to raise taxes & cut spending. But we will never do that just as we will never decrease spending when we cut taxes.
Kyle Wingfield
December 10th, 2009
9:56 am
To Intown Lib and others: As Ward points out, the deficits we’re seeing now are of an entirely different magnitude than the ones we saw for most of Bush’s presidency. Yes, the fiscal 2009 deficit of $1.4 trillion is on him (and Congress, which the Democrats have controlled since 2007) — but the nearly $300 billion shortfall we’ve incurred just since October puts us on a pace to surpass that in fiscal 2010, and that will be on Obama (and Congress).
And if you paid any attention, then you know a lot of conservatives started howling when Bush signed a $170 billion stimulus in Feb. 2008 (back when Washington still considered $170 billion a lot of money) and when programs like TARP, with an original price tag of $700 billion, were put in place. (Some assistance to the financial system was most likely necessary to prevent a collapse, though only because the Bush Treasury and the Fed were so schizophrenic in their approach to the unfolding crisis. And the TARP, which made up about half of the F09 deficit, was an ill-conceived plan from the start.)
So let’s not act like what we’re seeing now has been going on for the entire decade.
Kyle Wingfield
December 10th, 2009
9:57 am
Road Scholar: Maybe I wasn’t clear. If you buy a truck this year, you don’t buy it again next year. You might buy a second truck, but the first truck only gets purchased once.
That’s the distinction I was drawing between equipment and employees.
Ragnar Danneskjöld
December 10th, 2009
10:18 am
The pathetic aspect of Stimulus III is that the leftists do not yet appreciate the cause of the employment collapse. It had nothing to do with the real estate bubble (not really – that is less than 10% of the collapse.) The entire problem dates to the democrat takeover of Congress.
Immediately after Speaker Pelosi seized the reins of power, she proclaimed the Bush tax cuts dead. The brainless one assumed that taxes rise with no effect on employment. Small businesses, the heart of job creation in any economy, are often Subchapter S entities. Tax increases must be paid, either from higher revenues or lower expenses. Hold that thought for a moment.
Any leftist ascension is also reasonably accompanied by expectations of higher costs of doing business (e.g., cap and trade energy cost increases rippling through the economy, or health care mandates rippling through the economy, or more liberal tort liability standards). Higher costs, unless accompanied by a swift price inflation, ensure stagnant sales levels.
Where there can be no price increases, higher taxes can be paid only by lowering expenses. In a service economy, the only significant way to lower expenses is through manpower reductions.
So long as the leftists pursue both higher expenses for businesses and higher taxes, there will be no employment recovery.
Hard Right Hook
December 10th, 2009
10:35 am
Intown Lib
December 9th, 2009
10:52 pm
“It’s interesting how “conservatives” suddenly care about deficits again. Of course, none of this mattered when George Bush squandered Clinton surpluses with massive tax cuts instead of paying down the national debt.”
Clinton surpluses resulted from a conservative Congress draging Slick Willie to the table kicking & screaming. The Executive Branch cannot spend a penny unless Congress appropriates it.
As for the national debt, look at the increase over the last 11 months. Your Grandkids & Great Grandkids will still be paying it down.
Last, please explain how an exisiting cash surplus was “squandered” by a tax cut.
Do you walk to school or carry your lunch; true or false?
Ragnar Danneskjöld
December 10th, 2009
10:44 am
Dear IIntown,, I don’t care about deficits, I care about spending. Deficit is an artificial construct, and economically meaningless. Whether the government pre-empts private borrowing (”crowding-out”) or seizes the private investment wealth through tax-confiscation, the effect is the same. A more intelligent approach is to analyze whether the government is diverting capital from the productive economy to the unproductive economy. Obama is; Bush did not.
Jess
December 10th, 2009
10:45 am
Democrats are Corrupt,
The way you invest, you are currently paying tax on profits from your investments as normal income. You raise an interesting question though. If indeed a small business can pay no tax on shot term gains, this would be boon to people who invest as you do. I suspect this is not the case, however. Even if it were, since most small business investments are in equipment or machinery which depreciates rather than increases in value, this will be of little help. I suspect the administration just wants to announce a tax cut for small businesses, and has chosen the cheapest way to achieve this.
Joan
December 10th, 2009
10:47 am
I still fail to see how this stimulus money is creating jobs for the long run. Sure, if you hire a lot of people and put them on the end of shovels for awhile, and they build, they will do it until the money runs out. Then they are out of a job again. I know a lot of that money has been spent on idiot things like turtle bridges, customs checkpoints that no one passes, and the like, but don’t believe those things will be useful to the economy for the long term. What would be is the security in knowing that if you invest in the building of a company that will produce and sell product, that the government will not put you out of business with tax increases, healthcare demands, energy costs and the like. The government seems clueless about how to just let the economy work.
HDB
December 10th, 2009
10:47 am
The key question is this: WHO received the tax cut….and was the economy spurred? Every time a Republican gets into the White House, I’ve gotten a tax INCREASE every year….whereas when the Democrat gets into the White House, I’ve gotten a tax CUT!! I’ve been able to work and take care of a family under the Democrats…but get unemployed and struggling under the Republicans! The people who NEED a tax break – the MIDDLE CLASS – consistently get screwed by the GOP…and their wealthy friends get all of the breake. What is needed is a more regressive tax cut…..the prepondernace got to the middle class….while the wealthy pay their share. To whom much is given…..much is required!!
HDB
December 10th, 2009
10:50 am
@ Ragnar: “A more intelligent approach is to analyze whether the government is diverting capital from the productive economy to the unproductive economy. Obama is; Bush did not.”
Please show how diverting the government largesse to fund a war that was created solely on revenge is not diverting capital to the unproductive economy. If domestic spending had been spurred by Bush, we wouldn’t be in this fix!!
Ragnar Danneskjöld
December 10th, 2009
10:52 am
Dear HDB, when has the government ever given anyone anything? Best I can tall, it only takes that which belongs to others, the ones who earned it.
Your suggestion that the democrat congress, in power since 2006, has been beneficial to American workers ought to be challenged. We have seen nothing fut economic collapse beginning one year after they took over.
Ragnar Danneskjöld
December 10th, 2009
10:54 am
Dear HDB @ 10:58, trick question, there is no such thing as government largesse, as the government earns nothing.
We would agree that you believe the American military contributes nothing to the national weal when it kills terrorists. We would also disagree on the merits of that view.
Ragnar Danneskjöld
December 10th, 2009
10:56 am
Dear HDB, ” If domestic spending had been spurred by Bush, we wouldn’t be in this fix!!.” I think you are confused. Was it not the bizarre taxpayer subsidy of the real estate markets that created, fed, and nurtured the bubble that collapsed one year after the democrats took over Congress?
Democrats are Corrupt
December 10th, 2009
10:56 am
Jess, a long term capital gains tax cut for small business will only help the long term owner if he sells the business to someone else. If that someone else uses borrowed funds guaranteed by the sba to buy the business at a bloated price, and later defaults on the loan, that will cost the taxpayer twice. Once in the lost capital gains tax, and once on the bad debt to the sba. What we need is an import tax to raise the cost of imports so domestic production will be less expensive for the consumer. I propose a 20% import tax on automobiles and automobile parts, with an equal tax credit for parts used to manufacture new vehicles. The same tax structure would work for computers of all types, tires, small engine driven machines, power tools, and other higher value products.
David Axelfraud
December 10th, 2009
10:58 am
Kyle, this is from February of this year. That was then, I would love to know what the support is now.
Support for Stimulus Package Falls to 37%
http://www.rasmussenreports.com/public_content/business/economic_stimulus_package/february_2009/support_for_stimulus_package_falls_to_37
Fix-It
December 10th, 2009
10:58 am
FAIRTAX.ORG
Real Deal
December 10th, 2009
11:09 am
Powell recounted a few of the lines of a Louis Armstrong song of that era: “Sleep while you work, rest while you play, lean on your shovel to pass the time away, at the WPA [Works Progress Administration].”
Kyle Wingfield
December 10th, 2009
11:11 am
HDB: I’d like to know when exactly your taxes went up under a Republican president. The 2001 cuts reduced rates across the board. Clinton didn’t lower taxes at the bottom; he just raised them at the top.
HDB
December 10th, 2009
11:14 am
@Ragnar: False assumption that you think thaty I think that the military is a non-contributor to the nation; what I stated was that the war was created for solely a revenge factor. We needed to be in Afghanistan….not Iraq!! Iraq was solely Bush’s revenge against Saddam! THAT was unnecessary!! Also…Bush wanted the “Ownership Society” in that he wanted Americans to be homeowners. It wasn’t Congress who made the policy!!
And for your idea that the Congress since 2006 has done nothing to help the American worker….go back from 1964 to current date; you will find that when the Democrats were in power, the middle class GREW…whereas when the Republicans were in power, the middle class CONTRACTED!! GOP policies do NOT help the middle class!!
HDB
December 10th, 2009
11:20 am
Kyle: my taxes increased 10% under Reagan, 12.5% under Bush41, 7% under Bush43, 11.6% under Nixon, 5.8% under Ford…..but I saw a 12% reduction under Clinton….and I was making almost 6 figures!! I was also able to get funded for my educational pursuits under Clinton so that I COULD make 6 figures!! BTW..when Bush43 got into the White House, I LOST a six-figure job….and was unemployed for almost 3 years!!
My real-life experiences are different from the theories you espouse…..
HDB
December 10th, 2009
11:28 am
Kyle: BTW…lest you forget, the Alternative Minimum Tax (AMT) was enacted under Reagan….and that summarily became a TAX INCREASE on the middle class since Reagan didn’t INDEX the AMT. You may have forgotten that fact……
Kyle Wingfield
December 10th, 2009
11:29 am
HDB: My “theories” are the federal tax rates themselves, listed for their entire history here: http://www.taxfoundation.org/publications/show/151.html
I’m sorry you lost your job. But the only way a person’s taxes can rise when the rates are holding steady or falling is if his income is rising. And the only way his taxes can fall when rates are holding steady or rising is if his income is falling. In which case, if I were this hypothetical person, I would conclude that my income tended to rise under Republican presidents and to fall under Democrats.
But that’s just me.
The American People
December 10th, 2009
11:33 am
An unprecedented loss of popularity in less then a year for a President. The Peace Prize is a joke, Obama knows it, I know it, and the country sure knows it. An unprecedented farce. Team Teleprompter!!!
HDB
December 10th, 2009
11:35 am
Kyle: If tax rates are properly indexed due to inflation and deductions increase, one’s taxable income can decrease….since under Republican administrations, indexing of the tax rates did not exist, taxes increase!!
In my lifetime….which is longer than yours (I suspect), my income rose under Democrats….and was eliminated under Republicans!! A person can not be a productive tax payer if Administrations do not create policies suitable for economic growth….and the GOP has yet to prove that to me!!
But….that’s just me!!!
Kyle Wingfield
December 10th, 2009
11:36 am
Actually, HDB, since you’re so interested in the facts:
The AMT was enacted in 1969, under Nixon and a Democratic Congress, to catch 155 wealthy taxpayers who were able to take advantage of our Swiss cheese tax code and avoid paying any federal taxes. Since then, no president or Congress, whether Republican or Democratic, has done anything (including indexing it) to keep it from ensnaring more and more Americans — much less to simplify the tax code.
Kyle Wingfield
December 10th, 2009
11:41 am
HDB: You’re right about indexing, but wrong about when or under which presidents it does or doesn’t happen. In fact, as far as I can tell, the first time that brackets were indexed for inflation was under Reagan. I’m sorry if that doesn’t line up with your politics.
If everything you say is true, then I suggest you fire your accountant.
Jess
December 10th, 2009
11:41 am
Democrats are Corrupt,
I agree that practically the only way anyone will benefit from a long term capital gains tax cut, will be to sell the business. This is why I say this entire cut is just a “cheap” way for Obama to announce to the country that he is doing something to help small businesses. I think the only way to spur small businesses to hire is to stop doing stuff. Keeping in mind that small businesses are taxed like individuals, in the last year they have learned they will get an income tax increase from the roll back of Bush cuts, and increases on top of that to pay for Health care reform. This is not to mention the fact that they will have to give their employees health coverage or face an 8% penalty. And don’t forget the increase in minimum wages…..and they wonder why small businesses aren’t hiring.
Kyle Wingfield
December 10th, 2009
11:47 am
My source for the indexing comment, btw, is the Treasury Department:
http://www.treasury.gov/education/fact-sheets/taxes/ustax.shtml
HDB
December 10th, 2009
11:48 am
Kyle: Thank you for the corrections….but my accountant is a good one!! The first time I was caught under the AMT was under Reagan…..and the tax increases therein!! Under Republican Administrations, I always LOST employment….but under Democrats, I always GAINED employment!! The indexing that reduced my tax burden was under Clinton!!
Not my politics…..just my life!!