Economic Stimulus: Which Way?

Posted: Jan 30, 2008 4:22 PM
Economic Stimulus: Which Way?

With all the recent talk of recession, the housing crisis and the downturn in the stock market, many families and individuals are concerned that they may suffer significant financial hardships in the year ahead. Some of this is certainly due to individual over-extension of personal finances but some of it is related to forces beyond an individual’s control. The latter category includes local, state and federal taxes, which are particularly onerous for married, middle-class families with children.

Earlier this month, President George W. Bush outlined an economic stimulus package for Congress to pass in hopes of strengthening the economy amidst fears of a possible recession. Speaker of the House Nancy Pelosi (D-CA) subsequently introduced H.R. 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008, which the House of Representatives passed on January 29.

The idea of tax rebates, the main component of the bill, is a step in the right direction, although it is too early to tell what the bill will contain once it passes through both houses of Congress. It may be so laden with pork and unnecessary spending that the tax rebates it contains for individuals, families and businesses will be useless. The Hill newspaper is reporting that lobbyists are lining up to attach their clients’ spending requests to the legislation. According to the paper, “many [lobbyists] welcomed the news last week that the Senate intends to take a closer look at the deal brokered by the House and Bush administration. Slowing the process down allows a wide range of interest groups — from meatpackers to renewable-energy producers to financiers — more time to get in on what is now a $150 billion package.” In addition, Senator Max Baucus (D-MT), Chairman of the Senate Finance Committee, wants to broaden the House-passed legislation by extending unemployment insurance, boosting the size of the tax rebates and granting them to more people, including senior citizens who do not pay taxes and the wealthy (defined as individuals making more than $75,000 or couples making more than $150,000).

Acknowledging the fallacy of increased government spending, particularly during a time of recession, and the high costs of health care and college tuition, both of which affect the middle class more than others, Representative Eric Cantor (R-VA) on January 16, 2008 introduced H.R. 4995, the Middle Class Jobs Protection Act. The bill has five main components to grow the economy. First, it would slash the corporate tax rate from 35% to 25%, encouraging businesses to create jobs. Second, it would provide a 50% bonus depreciation for certain property acquired in 2008 and 2009. Third, it would allow businesses to claim expenses of $250,000 or less for purchases of $1 million or less over the next two years. Fourth, it would allow a five-year carryback for net operating losses, allowing companies with significant losses to trim their previous tax bills. Fifth, it would extend the carryback period for business tax credits for three years.

Business is often portrayed in the media as the root of all societal ills, but without businesses, large and small, American jobs would disappear. Congress must alleviate the tax burden for individual taxpayers so that people can pay their bills, save money wisely and perhaps put some back into the economy, but the tax burden on businesses must also be reduced because businesses create the jobs necessary for economic survival.

Cantor correctly noted that “job growth…is the key to addressing the slowdown in investment due to the housing crisis.” Tax rebates and a significant reduction in the corporate tax rate would go a long way toward ending the economic recession many fear is on the horizon. But these are temporary solutions, the sort of quick-fix mentality which is so common among our elected representatives who do not desire to confront persistent problems with long-term solutions. A simplified and reduced tax structure would alleviate many of our economic ills but a permanent overhaul of the tax code is perhaps too much to expect this year.