Falling Stimulus

It’s frustrating as an economist when polls and politics show support for misguided economic ideas and policies. That is, like the notion that the government extracting huge amounts of resources from the private sector – whether through taxing or borrowing – and spending those dollars according to political preferences will be good for the economy.

But earlier this year, the polls showed strong support for such silly ideas. Of course, it’s hard to blame “the people” when so many fellow economists peddle such tripe.

Today’s Washington Post, however, points to a shift in the right direction on so-called government-led stimulus. The Post reported:

• "Barely half of Americans are now confident that President Obama's $787 billion stimulus measure will boost the economy,… Overall, 52 percent now say the stimulus package has succeeded or will succeed in restoring the economy, compared with 59 percent two months ago. The falloff in confidence has been sharpest in the hard-hit Midwest, where fewer than half now see the government spending as succeeding. In April, six in 10 Midwesterners said the federal program had worked or would do so."

• "The falloff since April cuts across partisan lines. Confidence in the package's effectiveness has dropped from 81 percent to 73 percent among Democrats and from 32 percent to 26 percent among Republicans. Among independents, it has dropped from 56 percent to 50 percent. What was once a clearly positive assessment of the program among independents (56 to 39 percent) is now an almost even split (50 to 47 percent)."

Of course, there’s a long way to go here, to say the least. And much of the recent shift likely is attributable to general frustrations with the ongoing state of the economy, rather than a sudden understanding of how the economy works. But it’s a start, and an opportunity to present substantive alternatives.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

The "American Option" Stimulus

The U.S. Senate is now debating a “stimulus package.” Senators will be voting on amendments from all Members, which contrasts with the restrictive debate that the House political leadership imposed when they advanced their stimulus bill last week.

Many different ideas and alternatives are coming forth in the Senate. Last week, for example, Senator Jim DeMint (R-SC) unveiled what he calls the “American Option” stimulus plan – one focused on bringing tax certainty and relief to small business owners and all taxpayers.

As Senator DeMint describes the option, it would “defuse the 2011 tax bomb” by stopping tax increases that will hit small business owners and taxpayers in 2011. Specifically, the bill:

• PERMANENTLY REPEALS the Alternative Minimum Tax (AMT) – “once and for all.”

• Maintains the 15% capital gains and dividend rate – permanently.

• Permanently kills the death tax for estates under $5 million, and cuts the tax rate to 15% for those above.

• Permanently extends the $1,000-per-child tax credit.

• Permanently repeals the marriage tax penalty.

• Would permanently simplify itemized deductions to include only home mortgage interest and charitable deductions.

In addition, the bill proposed to:

• Lower the top marginal income rate for small businesses from 35% to 25%.

• Simplify the tax code to include only two other brackets – 15% and 10%.

• Lower the corporate tax rate from 35% to 25%.

On his website (www.demint.senate.gov) Senator DeMint goes into greater detail about the “American Option” plan. He also summarizes the major flaws connected with massive spending in both the House and Senate plans. As he points out, the “de-stimulus” approach currently making its way through Congress would:

• Cost taxpayers $1.2 trillion -- the largest spending bill ever enacted by Congress.

• Create over $10,000 in debt for each American family to be paid back in higher taxes for generations.

• 80 percent of the spending will not occur until 2010 or later.

• Joint Committee on Taxation staff testified that no jobs could be guaranteed to be created under the Democrat plan.

Wow, that last point is pretty amazing. An economic stimulus plan is supposed to stimulate economic activity – and I think that includes job creation. At least that is what the American public seems to be expecting.

Karen Kerrigan, President & CEO