The congressional Republicans risk looking very out of touch with voters in their insistence on a tax cut-only stimulus package. Not only does it seem an overly simplistic answer to a complicated problem, Republicans once again look like they are hewing to a narrow position based more upon ideology than common sense. That approach has gotten them, and the country, in a heap of trouble over the last eight years.
Their complaint that the Democrats won't listen to their ideas, particularly in the House, is undermined when their sole idea is simply more tax cuts. The Republicans did not do much listening when they were in power, but I do have sympathy for their complaints. Yet, how much listening does one really need to do when the Republican plan is a one-trick pony?
Will tax cuts alone improve the economy? I think a little, but too little and much too late to pull us out the nose dive we are in. Home Depot didn't shutter Expo and lay off more than 15,000 employees because taxes are too high. They did it because home building and renovation is at a dead-halt, and giving the average family a few thousand dollars in tax relief isn't going to change that.
Will tax cuts stimulate the economy? First, let's place the horrific pile of debt we are creating by lowering taxes at a time when tax revenue is caving in off to the side and consider tax cuts in a comfy, unrealistic vacuum. Tax cuts will help a little in the short-term, and probably more in the long-run.
Publicly traded companies may have little incentive to turn that tax cut into new jobs. Companies are "right-sizing" to a new economic outlook that suggests a long, slow recovery (after when we hit the bottom). They are not going to add more salary and benefit commitment to their expense line. With money frozen they cannot take on additional debt to finance new investments, and are unlikely to do so even if they could. They are more likely to focus on margin performance and shareholder value.
Mid-sized companies might spend a little of that tax break. They are more likely to be privately-owned, giving them some relief from shareholder expectations. They are also less able to absorb deep staff cuts without undermining their business. Small companies can only scale with staff, but the economy dictates their scale. They are more likely to use the cuts to keep the people they have, not hire new ones. Business tax cuts are more likely to help save existing jobs and create some freelance, contract, and part-time work than create a big lift in full-time employment.
The personal income tax won't do much of anything. We won't see a tax cut that exceeds average household credit card debt, so any spending it generates is still debt-spending. And now with Americans have tightened their belts and expectations they are too scared to spend money. Even the money that leaks out in consumer spending isn't a long-term solution. We saw that with the 2008 tax credit, which did nothing to help heal the underlying economy. And a tax cut can't help you if you have already lost a job. What you need is a salaried income, and that's why we need investment in projects that save jobs and create new jobs.
Public infrastructure projects can generate a lot of regional work. The construction is just the start, there is a ripple effect that spreads from arts to public affairs to communications. And it can happen quickly; the money starts flowing well before people start digging and pouring cement. It is not my favorite solution, but it is a piece of the puzzle. A lot of business can get hurt from construction projects, particularly road construction. Many business did not survive the Washington Avenue, Vandeventer Overpass, and Highway 40 construction projects over the last few years in St. Louis (I really miss King Louie's). But the stimulus outweighs the disruption and many of the projects sorely need to be done.
The investment in alternative energy also makes sense. It will impact science, technology, and ultimately manufacturing -- all sectors of our economy that need to be more competitive. This is a success by a thousand cuts scenario. We can't just expect the blunt tool of tax cuts to get the job done.
A fire needs both oxygen and wood to burn. Tax cuts may give us more oxygen, but we need to add some fuel to the fire.
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