The HariKari Road to Recovery
I understand the theory of The Republican Road to Recovery (see below) and I know how it “works” in practice, because it’s been the economic doctrine of choice for most of the last thirty years. The theory, also known as “supply side” and “trickle down,” is supposed to provide extra cash and capital to entrepreneurs who will in turn use their wealth to create jobs. The people who get those jobs spend the money they earn on goods and services. Their spending creates more demand for those goods and services, which in turn creates even more jobs. The theory works great… on paper. Kind of like last year’s Mariner team looked good… on paper.
The problem with the theory is that the very wealthy people at the top don’t practice what their party preaches. They don’t “trickle” their new found wealth down onto the rest of us. The rich have kept almost all of their tax savings for themselves. And the jobs they have created over the past six to eight years have not raised the average American’s standard of living. Average workers lost ground while those at the top saw their incomes nearly double. The jobs that have been created are generating more and more wealth for owners of the companies, but most of the people they employ aren’t getting paid enough to keep up with the increased cost of living.
So the Republicans’ plan to give the super rich hundreds of billions of dollars in more tax cuts every year is about the worst thing we could do right now. Historical data shows that their plan does not stimulate the economy. All their recovery plan would do is provide billions of dollars to the already super-rich people who would use their tax savings to replenish their depleted investment portfolios. Very little of “stimulus dollars” from tax cuts would go back into the economy.
To reiterate what is in the post below, the average CEOs of Americas largest 800 companies would see a tax cut of $1,500,000 every year if the tax cuts outlined in The Republican Road to Recovery were implemented and Paul Ryan’s plan to eliminate the capital gains tax was enacted. Now that’s what I call “redistribution of wealth,” but the redistributed dollars would be going to people who are already obscenely rich.
Here’s a chart I found a couple days ago on Open Left that shows how much bang for the buck different types of stimulus plans provide:
You can see from the chart that tax rebates work on about a one-to-one ratio. People spend their lump sum payments, and it provides the economy with a quick shot in the arm.
The chart shows that permanent tax cuts are very ineffective at stimulating the economy and creating jobs.
You can see that government spending is very effective at stimulating the economy. Why? Because it creates both jobs and demand for things that people going through rough times, like many Americans are right now, would otherwise choose not to spend their money on. It’s no surprise that the biggest bang for the buck comes from extending income support to people who lost their jobs for the obvious reason that they will spend every penny they get. Infrastructure spending is also very effective because it creates employment and it improves productivity by rebuilding roads, bridges, schools, dams, water systems, electrical systems, etc. that must operate efficiently for our economy to prosper.
So my solution for stimulating the economy would be to extend unemployment benefits, and provide tax rebates for single payers making under $80,000 and joint filers making under $160,000. To help pay for the government spending, I would immediately raise the top tax rate to 50% and then increase it again later if needed. (That’s still a pretty good deal when you compare it to what the top rates were between 1932 and 1980.) I would leave other tax rates as they are for now, but in two years I would raise the 28% bracket to 30% and the 33% bracket to 35%.
I would then dole out some money to the states for the next two years to help them with the demand for health and human services due to recession-caused unemployment. I would also let them know they can’t rely on federal funds once things turn around in two years, so they better find a solution to their revenue problems between now and then.
I would spend heavily on infrastructure repair, and I’d start right here Seattle! I’d order up a construction crew to start boring the tunnel to replace the viaduct right away and another crew to reinforce weak points on the viaduct that will have to remain in place for the five or more years that it will take to complete the tunnel. Then I’d hire a demo crew to tear the viaduct down. And then I’d throw a huge party for the people of Seattle to celebrate the destruction of their city’s ugliest and noisiest road ever built.
There are projects like this all over the country. There are old levees, old bridges, flooded roads, dilapidated schools… We should spend the money to fix these things now. The spending will create jobs and it will improve our productivity in the long run.
And that’s the HariKari stimulus recovery plan – Guaranteed to work.
