• Stimulus Plan

    Permanent Tax Breaks

    The Heritage Foundation has been arguing that temporary tax breaks are a poor stimulus substitute for permanent ones.  They argue that permanent tax breaks, unlike temporary ones, change the long-run outlook for entrepreneurs and encourage them to launch otherwise nonviable ventures – stimulating the market with new business.

    I’m somewhat nonplussed by this argument.  Given our existing debt, the large amount of new debt that the stimulus plan will entail, the reduction in the tax base caused by the recession, and President Obama’s stated intent to expand entitlements, it is unclear to me how any “permanent” tax cut would be credible.  Tax rates must rise to make up the difference between the larger amounts that the government is spending and its smaller tax receipts.

    I suppose Heritage’s response would be that President Obama should promise to make up the shortfall with large entitlement cuts after the recession.  This is a defensible policy, but I’m not holding my breath for our new Redistributer-in-Chief to adopt it.

  • Stimulus Plan


    When a natural disaster strikes, looters appear. A cataclysmic event disrupts social networks and creates a moment of chaos in which the safeguards against violent pursuit of self-interest flicker and disappear. Lost in a general hysteria, looters eagerly come forward because they know no one will hold them responsible. And they arrive in a flood, because few calamities last forever.

    As in the natural world, so in the political.

    Congress is poised to pass an enormous $850 Billion spending plan. As the economy slows President Obama insists that Congress quickly pass the bill. In the confusion of the administration’s opening days and the popular demand for government to “do something” the minority party will find it hard to resist the new President’s vapid claims to a mandate. As the “unprecedented” emergency overwhelms restraints, government will do “something” – that is, what the majority party would do if it bore no responsibility for its actions. Given the opportunity to distribute funds to its political supporters, Democrats have grabbed as much as they can carry – hundreds of billions for government health care, the Department of Education, and a smattering of pet projects. Rather than bloat clientelist payouts a few percent a year with gradual budget increases – increases that inevitably will still come – they have grabbed funds equivalent to nearly a fifth of the Federal Budget, all at once. These will be rich years for Democratic patronage.

    According to the CBO, a minority of the “stimulus” package will be spent over the next year. Why allocate so much money for later dates at which government spending may be not only unnecessary, but harmful? Why not pass only the immediate portions of the stimulus now, and save other sections for another bill at a later date, when economic facts can be reassessed and the proposed projects will be temporally relevant to those facts?

    Here is one reason: the crisis will ebb, heads will cool, and the time for looting will have passed. Future opportunities are uncertain, so Democrats will take what they can now.