With all the gloomy economic news, politicians from the left and the right want to project concern for middle-class economic anxieties. This led to a rare burst of bipartisanship and the cobbling together of so-called “stimulus” packages. The centerpieces is a tax rebate—which is really indistinguishable from plain old government handouts, since checks will be sent based on income and family size, without any real relationship to tax liability. Yet for all the talk about easing the financial pressures faced by the middle class, the government is still embracing policies that raise the cost of living and make it harder to pay the bills.
Consider the rising cost of food. According to the Bureau of Labor statistics, the cost of “food at home,” or food purchased at grocery stores, rose by 5.6 percent between December 2006 and December 2007. This included big increases in some family staples: the cost of milk increased nearly 20 percent, cheese by 13 percent, and bread by more than 10 percent. Why are families seeing their food bills climb?
The government’s energy policy shares the blame. Mandates that we use more ethanol have encouraged farmers to grow more corn, which can be used to create ethanol, and as a result farmers dedicated more of their farmland to this one crop. In 2007, twenty percent more acres were used for corn production than in 2006. The greater demand for corn made the price of corn—and products that depend on corn, such as poultry and beef—jump. But since the focus on corn left less land for raising other agricultural products, the price of commodities such as soybeans and wheat also rose to historic highs. If Congress continues to subsidize the production and mandate the use of ethanol, consumer food prices will continue to rise higher.
Heating and gas bills also increased last year. While Congress may provide additional short-term assistance for heating bills to those with the lowest income, policymakers are doing little to encourage an increase in our domestic energy supply. Policymakers still limit domestic exploration for oil and discourage the development of more refining capacity, even though these measures are among the most promising for bringing down energy prices over the long term.
In recent years, American families have been able to cut down on costs by taking advantage of the goods imported from overseas. Liberal elites may sneer at Wal-Mart, but there is a reason why so many families buy their everyday supplies from this retail giant: it saves them money. Wal-Mart leverages the global marketplace to bring in high quality goods at the lowest prices, which are then passed on to the consumer. As a result, the average American family saves an estimated $2,500 per year by shopping at Wal-Mart. Unfortunately, our progress in liberalizing trade has largely stalled, and, given the rhetoric of many presidential aspirants, may reverse in the next Administration. That’s the wrong direction for American families. If policymakers want to raise living standards for the middle class, they need to maintain a commitment to trade liberalization.
A rebate of a few hundred dollars will certainly be welcome by families across the country, but it has no impact on their future financial prospects and therefore won’t alleviate any feelings of economic insecurity. Workers want a growing, dynamic economy and a tax code that rewards work. Lowering marginal tax rates is the key to rewarding productive activity. For starters, Congress should make the existing tax cuts permanent so that workers will know that a big government-imposed pay cut isn’t in their future. While Senate Democrats push to extend unemployment benefits as a part of the “stimulus,” American families know that those out of work want jobs, not handouts. It may not sound like good progressive politics, but reforming our corporate tax code and lowering the corporate tax rate, which is among the highest in the developed world, would be among the best ways to encourage economic growth and job creation.
This stimulus package is a missed opportunity. Government can’t spend its way into economic prosperity, but policymakers can reverse damaging policies that hinder growth and make life more expensive for American families.
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