Striking Right at the Capillaries

While it’s different than the trial balloons there are 2 things wrong with Team Obama’s latest economic proposal.

The stimulus is too small-

Infrastructure

by Paul Krugman, The New York Times

September 7, 2010, 5:30 am

Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time – and you’ll hear again now – that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.

Why is this claim stupid? Because Econ 101 tells us that there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market.

And the tax cuts misdirected-

Why Obama Is Proposing Whopping Corporate Tax Cuts, and Why He’s Wrong

by Robert Reich

Tuesday, September 7, 2010

The reason businesses aren’t investing in new plant and equipment has nothing to do with the cost of capital. It’s because they don’t need  the additional capacity. There isn’t enough demand for their goods and services to justify it. Consumers aren’t buying because they’re trying to come out from under a huge debt load, including mortgage debt; they have to start saving because their nest eggs are worth substantially less; and they’ve lost or are worried about losing jobs and pay.



Republicans and corporate lobbyists have been demanding tax cuts on corporate investments for one reason: Big corporations are investing in automated equipment, robotics, numerically-controlled machine tools, and software. These investments are designed to boost profits by permanently replacing workers and cutting payrolls. The tax breaks Obama is proposing would make such investments all the more profitable.

In sum, Obama’s proposed corporate tax cuts (1) won’t generate more jobs because they don’t put any cash in worker’s pockets (as would, for example, exempting the first $20,000 of income from the payroll tax and making up the difference by applying the payroll tax to incomes over $250,000); (2) will subsidize companies to cut even more jobs; and (3) will cost $130 billion – money that could better be spent helping states and locales avoid laying off thousands of teachers, fire fighters, and police.

Yay Team.

3 comments

  1. This should have been at least $500bn or better. Obama hasn’t learned and needs to  stop listening to the whining Republicans and wimpy Democrats about the deficit. The only way the deficit and the economy will improve is to create more jobs. The President and Congress need to address the tax loop hole for companies that send jobs overseas and make it a major campaign issue.

  2. From Peter Orszag, the director of the White House Office of Management and Budget from 2009 to 2010, now a contributing editor at the NYT.

    The nation faces a nasty dual deficit problem: a painful jobs deficit in the near term and an unsustainable budget deficit over the medium and long term. This month, the Senate will be debating an issue with significant implications for both – what to do about the Bush-era tax cuts scheduled to expire at the end of the year.

    In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it.

    Why does this combination make sense? The answer is that over the medium term, the tax cuts are simply not affordable. Yet no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned.

    Is he serious????? These tax cuts haven’t produces one job in ten years, extending them for the wealthy for two more years won’t change that. If they are so damned worries about the deficit letting these tax cuts expires will help solve that.

    The Democrats are going to lose badly this November and this part of the reason why. They weren’t elected to continue the economic debacle of the last administration.

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