The even-bigger-government ’stimulus’ of the left’s dreams

Writing at the Huffington Post, former Labor Secretary Robert Reich says President Obama hasn’t proposed a significant enough jobs plan and offers the following as what Obama should propose:

First, we’ll exempt the first $20,000 of income from payroll taxes for the next two years. This will put cash directly into American’s pockets and boost consumer spending. We’ll make up the revenue shortfall by applying Social Security taxes to incomes over $500,000.

Second, we’ll recreate the WPA and Civilian Conservation Corps — two of the most successful job innovations of the New Deal — and put people back to work directly. The long-term unemployed will help rebuild our roads and bridges, ports and levees, and provide needed services in our schools and hospitals. Young people who can’t find jobs will reclaim and improve our national parklands, restore urban parks and public spaces, recycle products and materials, and insulate public buildings and homes.

Third, we’ll enlarge the Earned Income Tax Credit so lower-income Americans have more purchasing power.

Fourth, we’ll lend money to cash-strapped state and local governments so they can rehire teachers, fire fighters, police officers, and others who provide needed public services. This isn’t a bailout. When the economy improves, scheduled federal outlays to these states and locales will drop by an amount necessary to recover the loans.

Fifth, we’ll amend the bankruptcy laws so struggling homeowners can declare bankruptcy on their primary residence. This will give them more bargaining leverage with their lenders to reorganize their mortgage loans. Why should the owners of commercial property and second homes be allowed to include these assets in bankruptcy but not regular home owners?

Sixth, we’ll extend unemployment benefits to millions of Americans who have lost part-time jobs. They’ll get partial benefits proportional to the time they put in on the job.

Presumably, this is the kind of super-stimulus that Reich, Paul Krugman and other arch-progressives have said Obama and Congress should have passed in 2009 — although, admittedly, I can’t tell whether Krugman is for or against such things these days. In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners; performing more of the kind of infrastructure work and preserving more of the kind of public-sector jobs that the actual stimulus did, to disappointing effect (forget that whole “there’s no such thing as shovel-ready projects”); and threatening the financial health of the very banks that, as Reich notes, we bailed out less than three years ago.

Gee, I wonder why Obama hasn’t proposed a plan like this?

– By Kyle Wingfield

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115 comments Add your comment

Baker

July 13th, 2011
10:55 am

Thanks to Obama’s passing of the stimulus buck to Pelosi and Co. with the original stimulus plan, this boat has sailed. The Keynesian door is closed because of the Dem House’s wastefulness with the first one.

Kyle Wingfield

July 13th, 2011
11:03 am

Exactly right, Baker. I still think it was the single biggest mistake of Obama’s presidency to date.

Finn McCool

July 13th, 2011
11:04 am

Yeah, like that Blue Ridge Parkway? What a waste of taxpayer money, right? That was a public works project.

Maybe we improve the bridges and other peices of infrastrucure? But I know you conservatives just hate the idea of taking money from people who invest what they have and give it to people who can do the actual work.

Wouldn’t want to disrupt the Wall Street casino that has evolved with our 401k infusions over the last 30 years.

Kyle Wingfield

July 13th, 2011
11:04 am

I also think much of the work Reich outlines in point 2 sounds suspiciously like Jobs Americans Won’t Do.

Kyle Wingfield

July 13th, 2011
11:09 am

Way to change the subject, Finn. The question is not whether something akin to the Blue Ridge Parkway would be a “waste of taxpayer money” but whether it would boost the economy.

ByteMe

July 13th, 2011
11:20 am

There’s a reason he’s a “former labor secretary” (from pre-Millenium days) and not, say, something more current. He’s not quite what anyone with a brain would think of as being the go-to person for policy advice. But these sites like HuffPo require their writers to contribute a piece every few days… (sort-of like the AJC :) ), so you get some strange things written and then some writer somewhere else gives it unnecessary credence by saying “Presumably, this is the kind of super-stimulus that Reich, Paul Krugman and other arch-progressives have said Obama and Congress should have passed in 2009″….

Blue Man on a Red Island

July 13th, 2011
11:27 am

@Kyle – If we are a consumer driven economy, and we are, how does more money in the pockets of more Americans not make sense? That money is currently on the sidelines as record profits for corporations are not turning into jobs for the middle class. If the middle class can not afford to buy a new TV, a new car, take the family out to dinner, etc there is no way a consumer driven economy can grow.

The low taxes we have enjoyed since 2003 have not had the desired effect on jobs. All the job creators are hoarding that money and only release it to a very few lucky individuals at the top. There are not enough of those guys to drive this economy with their spending.

Maybe I am over simplifying it but that’s just the way I see it.

Jefferson

July 13th, 2011
11:35 am

Take the bailout for example, they should have gave the money to people and told the banks now get it from them.

Take some of the jack waged on neo-wars and build nations at home.

In the end, tax levels need to go back to where the were when the country was prosperous.

jconservative

July 13th, 2011
11:48 am

” In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners,…”

That is one plan that has been thrown around for years.

The other plan being thrown around is this: …the idea is that we will boost the economy by taking more money from lower wage earners and giving it to higher earners.

Is there a middle ground here? And do not give me an economic plan that depends on predicting human behavior as its cornerstone. We tried that with “trickle down” and you can see where we are now.

td

July 13th, 2011
11:49 am

You liberals keep singing that same tune over and over again. I have a couple of questions for you:

How much wealth has the government ever produced?
When did it become the governments responsibility to supply jobs to people?

td

July 13th, 2011
11:51 am

” In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners,…”

Redistribution of wealth or socialism. Is this what you Dems really want?

Don't Tread

July 13th, 2011
11:55 am

“That money is currently on the sidelines as record profits for corporations are not turning into jobs for the middle class”

No one is obligated to provide a job for you with their money.

But, some good news. They’re hiring in China…

B.O.

July 13th, 2011
12:00 pm

Socialism is great! Look how well it works in Europe. We should completely dump capitalism as it only works for a few and embrace a government controlled economy so the have nots have as well.

Bart Abel

July 13th, 2011
12:01 pm

RE: “In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners…”

Economically speaking, its actually a sound idea. Why? Because working class people necessarily spend most or all their money. People with a great deal of discretionary income obviously spend a much smaller portion of their money.

The size of the economy is measured by spending (a dollar isn’t included in the GDP until it’s spent). If you take money from people who aren’t spending it and give it to people who are, then, by definition, you’re growing the economy. You can disagree with the fairness of this approach, but you can’t argue with the arithmetic. Reich’s proposal can’t help but work.

(And yes, the stimulus worked. Economic contraction became economic growth. Stock market declines became stock market growth. Job loss became job growth…sputtering…but growth. It wasn’t big enough to put everybody back to work that lost their job, but it mitigated the damage and turn things around)

Sure, taxing the first $20,000 of payroll taxes and making it up by taxing payroll over $500,000 is taking from higher earners to give to lower earners. But why do we prefer the alternative? With current caps on payroll taxes, we’re currently taxing middle and low-income workers at higher rates than we tax high earners. Payroll taxes are regressive. Reich is proposing that payroll taxes be made, temporarily, more progressive. Even Adam Smith supported progressive taxes.

ByteMe

July 13th, 2011
12:04 pm

” In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners,…”

Redistribution of wealth or socialism. Is this what you Dems really want?

Compared to td’s definition of capitalism, which lines the pockets of the high earners with more tax breaks and subsidies while letting the lower wage earners go hungry. Hmm… let’s see, which one triggers a revolution to overthrow the plutocracy…?

Blue Man on a Red Island

July 13th, 2011
12:17 pm

@Don’t Tread – Don’t need a job personally, all set there. I do however recognize that 9.2% of my fellow Americans (actually higher with under-employed) are hurting and need help. I also recognize America did not become great by saying “tough, move to China”.

Del

July 13th, 2011
12:22 pm

“Gee, I wonder why Obama hasn’t proposed a plan like this?”

Kyle, he would like to but you know those darn rich people who won’t pay their fair share along with those evil Republicans who keep getting in the way of Obama’s America transformation plan to spend us into third world status.

Bart Abel

July 13th, 2011
12:23 pm

I’d like to re-propose a long-term solution to saving social security, growing the economy, and reducing smog. Eliminate the Social Security tax and tax carbon emissions instead.

Even if you don’t believe in global warming, you can’t live in Atlanta and not believe in smog. Yeah, we’ll pay more through our electric bills, but not as much as we’ll save in our paychecks and taxpayer savings on Medicaid/Medicare through lower air pollution.

We’ll also get an economic boost out of it (more income for people who will spend and more spending on pollution controls and alternative forms of energy), which would only help to grow our incomes and property values.

Moderate Line

July 13th, 2011
12:24 pm

This looks more like using a poor economy to do more income distribution.

ByteMe

July 13th, 2011
12:28 pm

you can’t live in Atlanta and not believe in smog.

Smog is God’s will. Taxing it is not God’s will. God told me so.

CJ

July 13th, 2011
12:28 pm

Why do Republicans oppose this idea: “Fifth, we’ll amend the bankruptcy laws so struggling homeowners can declare bankruptcy on their primary residence. This will give them more bargaining leverage with their lenders to reorganize their mortgage loans. Why should the owners of commercial property and second homes be allowed to include these assets in bankruptcy but not regular home owners?

Why should the owners of commercial property and second homes be allowed to include these assets in bankruptcy but not regular home owners? I’d like to know the answer to that question too.

Moderate Line

July 13th, 2011
12:41 pm

In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners; performing more of the kind of infrastructure work and preserving more of the kind of public-sector jobs that the actual stimulus did, to disappointing effect (forget that whole “there’s no such thing as shovel-ready projects”); and threatening the financial health of the very banks that, as Reich notes, we bailed out less than three years ago.
+++
There are shovel ready projects. The problem is that there are just not that many of them. Most entities including the government do not invest in planning and design if they don’t have the money to construct.

John

July 13th, 2011
12:42 pm

Baker@10:55, “Thanks to Obama’s passing of the stimulus buck to Pelosi and Co. with the original stimulus plan, this boat has sailed. ”

Trying to rewrite history again. The original stimulus plan was passed in a bipartisan way and signed into law by Bush in 2008. Remember the Crier of the House crying on the House floor begging for it’s passage? Or John McCain leaving the campaign trail and then taking credit for it?

Republicans were for stimulus, that is, until Obama became president.

td

July 13th, 2011
12:51 pm

John

July 13th, 2011
12:42 pm

Sorry my friend but that was TARP and not stimulus. The government will get paid back for TARP but threw money down the drain with the Democrat stimulus plan.

Rafe Hollister

July 13th, 2011
1:00 pm

How many parasites can live on one host, that is the question. When does the host just give up, lie down and die. The parasites all celebrate their victory then, until they realize new hosts are getting scarce. How many rich people are left in Greece?

At one time rich people moved from state to state to avoid heavy taxation, NY to FL. Now, they can just as easily move from country to country. Where do we get our revenue stream when all the rich have quit earning or moved?

John

July 13th, 2011
1:05 pm

td…let the government stop trying to stimulate the economy. Let’s do what Republicans want and end government spending…gut social security, medicare and medicaid. And who is let that will be putting money back into the economy? Consumers aren’t spending due to not having jobs or fear of losing it, companies are sitting on wads of cash and not adding jobs claiming it’s due to consumers not spending. It’s a catch 22. Who’s left that can pump money into the economy? Government, that’s it.

John

July 13th, 2011
1:11 pm

td

July 13th, 2011
12:51 pm

You’re wrong TD…In 2008, the Bush Administration handed out a slew of economic stimulus packages.

Under President George Bush’s administration, the Federal government gave $29 billion to bail out Bear Stearns, $178 billion to American taxpayers in the form of economic stimulus checks, $300 billion to bail out American homeowners, $200 billion to bail out Fannie Mae and Freddie Mac, $150 billion to bailout AIG, and $700 billion to bail out banks (TARP).

John

July 13th, 2011
1:23 pm

td

July 13th, 2011
11:51 am

“In short, the idea is that we will boost the economy by taking more money from high earners and giving it to lower wage earners,…

Redistribution of wealth or socialism. Is this what you Dems really want?”

Under the Bush stimulus package, Most taxpayers received a check of up to $600 for individuals and $1,200 for couples from the Internal Revenue Service, with an additional $300 per child. People earning at least $3,000 and those who owe little or no taxes got $300 for singles, $600 for couples. Those making more than $75,000 and couples with income exceeding $150,000 got smaller rebates — $50 less per $1,000 they make over those thresholds.

Noticed the higher income earners got less…was that redistribution of wealth or socialism? That’s what John Boehner cried for on the house floor? Is that what Republicans voted for and singed into law by a Republican president? Them socialist Republicans.

jconservative

July 13th, 2011
1:23 pm

“BRUSSELS (AP) — Moody’s Investors Service on Tuesday downgraded Ireland’s government bond ratings to junk,…”

So much for cutting revenue (corporate tax rates) and increasing spending (entitlements).

Wonder why the Irish did that? All they had to do was look to the US to find out that cutting revenue and increasing spending does not work.

Of course, that leaves me to wonder exactly why the US did it. And did it for 30 years knowing the whole time that we were going into the tank.

There are two ways to steal from the government piggy bank; first via tax cuts and second by increased government services. Both come straight out of the Treasury Department’s available cash.

Ayn Rant

July 13th, 2011
2:42 pm

We may as well give up on “stimulating” the US economy. The federal and state governments are incompetent to plan, build, and maintain the infrastructure needed for a growing economy, or to provide the regulation needed to support and maintain free market competition.

We really don’t need a stimulated US economy anyhow. Our private sector is doing just fine by parking unneeded capital in speculative financial instruments, investing in overseas markets, and diverting profits to buy out, buy off, or merge with competitors to eliminate jobs.

American consumers are doing just fine; we’ve never before been offered such a wide choice of low-priced, high quality products. Asian industry can supply our utility and household goods. European industry can supply our fashion and luxury items. Peasants in developing countries, and illegal immigrants in America, can provide our foodstuffs.

Why would we want polluting industries in our communities? Why should we get up early on weekdays to work a job that involves noisy machines, tedious procedures, or tiresome customers? Why would any American citizen toil in the fields to spray noxious chemicals and harvest crops during the hot summer months?

As long as we can support domestic consumer demand, why should we care about domestic production? We just need a divided, gridlocked government that can tax the good fortune of rich individuals and mega corporations, who are not dependent on the US economy, and distribute the proceeds to the sick, the elderly, the incarcerated, and the unemployed.

Linda

July 13th, 2011
3:50 pm

During Reagan, the fed. govt. spent $7.899 T, $924 B per yr.
During GHW Bush, the govt. spent $5.102 T, $1.275 T per yr.
During Clinton, the govt. spent $12.692 T, $1.586 T per yr.
During G Bush, the govt. spent $17.3 T, $2.163 T per yr.
During Obama, during FY09 thru FY11, the govt. has & is spending $10.793 T, $3.598 T per yr.
During Obama, FY09-FY12, his first term, the govt. has & is spending $14.522 T, $3.63 T per yr.
During Obama, FY13-FY16, his second term, the govt. is projected to spend $16.406T, $4.1 T per yr.
During Obama’s 8 yrs., the govt. is projected to spend $30.928 T, $3.866 T per yr.

During Obama’s second term, the govt. will be spending per year 4.4 times more than Reagan, 3.2 times more than GHW Bush, 2.6 times more than Clinton & 2 times more than G Bush.

During Obama’s 1st term, the fed. govt. will spend more than the current debt limit of $14.3 T.

During Obama’s 2 terms, the fed. govt. will spend twice the current debt limit.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

Jimmy62

July 13th, 2011
3:51 pm

John,
There column after column from right wing pundits and people like me trashing the whole tax rebate thing, because it was a silly waste of money. However, it was less a silly waste of money then taking the equivalent amount of money and using to start some useless government program to help those people that would otherwise would have gotten stimulus checks.

Even better, don’t take money from them only to give money back in the form of stimulus checks or new gov’t programs. Just let them keep that money in the first place.

Jimmy62

July 13th, 2011
3:54 pm

Linda: And what do those numbers tell you? Obviously it’s a revenue problem!

George P. Burdell

July 13th, 2011
3:56 pm

I’ve got to comment on this idea that payroll taxes are regressive because it is being thrown around all of these blogs like it is fact when it is not. While you can make the argument the tax itself is regressive, it is the one tax that the benefits go back directly to the payee. The payout of Social Security is most decidely progressive. People at the low end of the income scale can expect to get a 6% or better “return” over a lifetime whereas someone at or near the social security maximum wage taxable gets closer to 2% or less. Over the current maximum is not an issue because while the tax doesn’t hit higher wages, you also won’t get any higher payouts. Unfortunately, this is yet another issue where the poor benefit, it has little impact on the rich, and smashes face first into the middle class.

@@

July 13th, 2011
3:56 pm

Krugman and Reich must be insane…doing the same thing over and over again and expecting different results.

Linda

July 13th, 2011
3:57 pm

The economic stimulus bill, passed 2/09, cost the same as the average annual total spending of the US govt. during Reagan.

MrLiberty

July 13th, 2011
4:00 pm

Why does it seem like every proposal from this guy or the current adminstration is straight out of the history of the Great Depression? And by the way, I am talking about Murry Rothbard’s “America’s Great Depression”, not the government approved books of lies that say that all this kind of crap helped. Its like these guys are standing in a hole with a shovel and all they know how to do is dig deeper. Government spending, money creation, and government jobs programs are ALL making things WORSE. The economy MUST CORRECT itself from the horrible mistakes made during the bubble. Decreasing home values, unsustainable industries, failing banks, and the like must play out their hands. They cannot be propped up. They must come to a natural level. Then we can begin again.

This Depression is going to get MUCH worse. When history looks back on this one they will ALSO note that it was government action that made it worse. God, if even the liberals at UCLA can come to that conclusion about the first Depression, why can’t anyone manage to learn before they make this one worse????

Stimulatingly Bigger

July 13th, 2011
4:02 pm

I recall my GrandDad telling me about his time in the C.C.C. camps when I was a boy. I have to tell you though that I never thought that day would ever come again. Of course, I also studied about the Holy Wars in history classes as a lad. Never again I said to myself. Never say never I guess.

Kyle Wingfield

July 13th, 2011
4:05 pm

Bart @ 12:23: I’m no fan of smog, but I’m not sure how switching to a carbon tax is a “long term” solution for SS given that government and industry are busy trying to eliminate, or at least sharply reduce, carbon emissions.

John @ 12:42: You don’t think there’s a difference between a $152 billion stimulus that went directly to taxpayers and a $787 billion stimulus that went in part to taxpayers but also was funneled through a lot of the same bureaucracy we’re now trying to cut? Like, for starters, $635 billion? (Btw, I didn’t think the 2008 Bush-Pelosi-Reid stimulus was a very bright idea, but I do think it’s possible to have favored the first one and not the second one because of the very real differences between the two. Despite your partisan lenses, not everything is about partisanship.)

jconservative @ 1:23: Actually, the Irish corporate tax-rate cut is one of the very few instances in which the Laffer Curve worked exactly as caricatured by mistaken proponents and cynical opponents: A rate cut immediately yielded more revenue, and did so until Ireland was engulfed by the global financial crisis. Ireland’s problems are three-fold: Its government spent even faster than revenues rose, it was ill-served by the European Central Bank’s monetary policy, and its government made the large mistake of offering an unlimited bailout to its banks.

Linda

July 13th, 2011
4:09 pm

@@ @3;56, Why could you possibly believe they are expecting different results? Don’t you understand the motives of the far left?

Scooter

July 13th, 2011
4:12 pm

Unfortunately, people today won’t work as hard as people used to and they take less pride in the work they do.

Stimulatingly Bigger

July 13th, 2011
4:13 pm

Where’s all this stimulus coming from? We’re already in hoc.

Linda

July 13th, 2011
4:15 pm

MrLiberty@4:00, You just don’t get it. They know what they are doing & what the results will be.

Linda

July 13th, 2011
4:17 pm

Stimulatingly@4:13, They are borrowing it from California & Illinois.

Real Athens

July 13th, 2011
4:17 pm

Truth about “Voodoo” or Supply Side Economics.

http://zfacts.com/p/voodoo.html

John

July 13th, 2011
4:28 pm

Kyle @ 4:05: I noticed how you mentioned the $152 billion stimulus that went directly to taxpayers when talking about the Bush stimulus but you failed to mention all the other part Bush signed…like 29 billion to bail out Bear Stearns, $300 billion to bail out American homeowners, $200 billion to bail out Fannie Mae and Freddie Mac, $150 billion to bailout AIG, and $700 billion to bail out banks (TARP).

I also noticed how you called it the 2008 Bush-Pelosi-Reid stimulus. It was passed with bipartisan support. Boehner cried on the House floor to get it passed. John McCain left the campaign trail and tried to take credit for it. How many Republican politicians railed and voted against the stimulus package Obama signed and then went back to their districts and took credit for projects in their own districts funded by the measures.

Stimulatingly Bigger

July 13th, 2011
4:33 pm

Yeah Kyle, tell the whole story.

Bart Abel

July 13th, 2011
4:43 pm

Kyle @4:05: If a carbon tax works to eliminate carbon emissions, then I’ll happily propose going back to SS payroll taxes…progressive SS payroll taxes.

By the way, I would argue that Ireland wasn’t just engulfed in a global financial crisis. They contributed to it.

For comparison, notice that Canadian banks, for example, didn’t need a bailout partly because of regulation (gasp) requiring lenders to retain some of the risk arising out of the loans they made.

Also, Ireland’s government has exacerbated their crisis by making the mistake of implementing austerity measures which, by definition, takes money out of the economy. The result is a downward spiral. Ireland’s economy contracts, so deficits rise. Ireland cuts spending which causes Ireland’s economy to contract further which leads to more deficits. Ireland cuts spending again, and the vicious cycle continues for years, until today, their debts are considered to be junk.

What’s the lesson here? Austerity (drastic government spending cuts) does not shrink deficits and does not grow economies. It has the opposite effect. Austerity hasn’t worked in any of the European countries, and it never will. Sadly, I fear that we’re ignoring this truth at our peril.

td

July 13th, 2011
4:46 pm

John

July 13th, 2011
4:28 pm

I did not agree with bailing out these corporations but there is a difference in bailing them out and stimulus. The $300 has barely been spent. Fannie and Freddie are government entities(do not forget about Barney Frank calling the GWB people stupid when they came before his committee and asked for change), AIG was part of TARP and if I am not mistaken most of that money has been paid back to the government.

Ayn Rant

July 13th, 2011
4:50 pm

Linda, I hope you’re not basing your judgement on the statistics you quote! They are unadjusted for the declining value of the dollar and the rising GDP. Actually, federal taxes are the lowest percentage of GDP since WW2, and government spending as a percentage of GDP is quite low, and would be even lower had GDP increases not been halted by the Bush Republican financial meltdown of 2007-08.