Right Thinking From The Left Coast
I find that the harder I work, the more luck I seem to have. - Thomas Jefferson

Friday, September 03, 2010

We Are All Supply Siders Now

Do you think the Obama Administration is feeling the heat?  Just a little bit?

With just two months until the November elections, the White House is seriously weighing a package of business tax breaks - potentially worth hundreds of billions of dollars - to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

Several problems here.  First, there is no way this would happen before the election and no way the way the effects would kick in before the election.  Obama’s not that stupid.  If he really wants to do this, he’ll wait until after the election so he can demonstrate some bi-partisan cooperation and still get the economic benefits before the 2012 election, assuming there are any.

Which brings to my second problem—this may not necessarily help the economy.  A payroll tax holiday is kind of meaningless and useless.  The problem with our economy is not a lack of money out there and certainly not a lack of cash in people’s pockets.  The problem is the regime uncertainty of having upheaved both finance and healthcare within a few months (read Bainbridge’s latest on recent changes to proxy voting laws).  No one wants to invest in that kind of environment and a temporary “now you see it, no you don’t” tax cut is going to create more uncertainty, not less.  We tried a temporary tax cut in 2008.  It didn’t work.  Much of the “stimulus” consisted of temporary tax cuts.  It didn’t work.  The best thing to help the economy right now is to stop “helping” by changing policy every six seconds.

Much more effective would be a permanent overhaul of the tax system, preferably involving the creation of a flat corporate tax rate.  I grant you such a regime would not allow for various jiggery-pokeries to give tax breaks to special interests and “encourage” green technology or whatever.  But it would eliminate the deadweight drag on the economy and cost the government nothing.

And cost brings me to my third objection.  Unless this is matched by spending cuts, it’s useless.  The government will give back tax money with one hand wile taking back bond money with the other.  It’s a shell game.  The burden on our system is defined by the amount of government spending, not the amount of government taxation.

So apart from being unlikely to happen soon, being a chimera of a stimulus and not really being a tax cut at all, this is a great idea.

Posted by Hal_10000 on 09/03/10 at 12:10 PM in Politics   Law, & Economics  • (0) TrackbacksPermalink
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