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Stimulate This

D.B. Maxwell

01/28/09

Despite Barrack Obama's successful effort to retain his blackberry in office, it is hard to be optimistic regarding his pledge to remain open to ideas from all quarters.

The economic stimulus package passed today by the House and now making its way to the Senate is an example. In a struggle between a Democratic desire to spend more and a Republican desire to tax less, the Democrats unilaterally passed a bill widely reported as being two thirds spending and one third tax cuts.

America's best hope is that the final bill will have less of both.

Alex Taberrok, in a blog shared with fellow George Mason University economist Tyler Cowen, writes that investment tax credits are superior to simple income tax reduction, because they stimulate "incentive to invest now, when times are tough," especially when they are expected to be temporary. See Marginal Revolution

Neither the Democratic push for spending nor the Republican push for tax cuts have the capacity to simulate job creation as rapidly or as efficiently as would well reasoned tax credits for investment and hiring.

For capital intensive industries, purchase of equipment from U.S. manufacturers should be incentivized.

Investment, new hiring, and labor retention in labor intensive industries are more difficult to quantify, but should be pursued as well.

Indications are that the Administration’s rush to move the package through the House had less to do with support for the present language, and more to do with getting the issue quickly to the Senate where the real stimulus package will be forged. Any bill hammered out in the Senate, where the lack of a filibuster-proof majority forces Democrats and Republicans to work more closely together, will likely meet approval in the House.

That final package should be weighted heavily toward incentives for private investiment in job creation.

For those who feel that the fortunes they have earned in this great American economic system have been taxed too heavily, the bargain should be straightforward: “Invest more in America's workforce, and watch your tax bill decline.”

Copyright 2009