by John F. Di Leo
Our new president says that we need to spend our way out of the current recession – that, contrary to Republican opinion, the most important thing isn’t the contents of the stimulus package, but the price tag: the higher, the better. Mr. Obama maintains "Of course it’s a spending bill. What else is a stimulus plan?"
I beg to differ. A stimulus plan, if government spending is what’s really needed at the time (which it rarely is). But that’s not the definition anyway. An effective government stimulus plan is one that private sector economic growth.
If government spending were the solution, this past decade of riotous federal and state budgets would already have given us an economic boom. Obviously, idiotic government overspending is not the cure this time, if ever.In fact, government spending is only the solution when government underspending precipitated the crisis. No serious critic can make that case today. By Mr. Obama’s definition, every budget for the past several years has been a stimulus plan, and look where it’s got us.
- Relieve federal mark-to-market rules, to restore housing values and repair the reparable parts of bank balance sheets.
- Privatize the federal monsters – Fannie Mae and Freddie Mac – and split them into dozens of smaller, manageable entities, to reduce the damage that any single monster bank can do when troubled in the future.
- Privatize the FDIC. About half of America’s credit unions have private insurance; why not allow banks the same freedom? Mandate some basic coverage, as we do with auto insurance, and leave the provision and the details to the free market (with the beating our insurance industry has taken recently, this infusion of new business would be a blessing to all).
- Cut taxes now. But not just any taxes: the ones that do the most damage. Further individual tax rate cuts won’t directly help workers who’ve lost their jobs to foreign shores. We must cut our effective corporate income tax rate – for big and small business alike – from today’s crippling 34% to the 11% of our most visionary and successful foreign neighbors. And capital gains tax rates should drop to 5% or 10% at most, to draw people back into the market.
- Most importantly: make these good changes permanent. Spending programs merit sunset dates, tax rate cuts don’t. One of the greatest errors of the Bush II administration was to allow its last round of tax cuts to be temporary. A business deciding whether to build a factory in the USA or in China isn’t going to be swayed by a pathetic little $3000/person one-time hiring credit or even a tax rate cut that expires in three years. A new factory is meant to be in business for the next forty years; businessmen plan long-term, not short-term. Tax policy must be permanent to have a stimulative effect.