The Club for Growth has issued a press release on President Bush's stimulus package:
The Wrong Way to Go on Economic Stimulus
Washington – With the prospect of a recession looming in the not-so-distant future, both President Bush and the Democrats have embraced economic stimulus packages that include timely, targeted, and temporary so-called solutions. The trial balloons that have been floated so far, unfortunately, are likely to do little to stimulate the economy. [# More #]
Consider the stated goals:
Timely: This is a nice sentiment, but it’s not going to happen. Congress moves slowly. Just ask the former Ways and Means Committee Chairman Bill Thomas who wrote in the Wall Street Journal today that “tax cuts generally take at least six months to pass into law and can often take much longer.”
Targeted: Targeted rebates are essentially a redistribution program that allows politicians to hand out money to a favored constituency at the expense of others.
Temporary: This is the worst idea of all. Even if one thought the proposed stimuli were a good idea, any plan that lacks permanence fails to provide the predictability and stability necessary for economic recovery.
Finally, the notion that rebates will help the economy is a myth; there is no such thing as a free lunch. In order to pay for the rebates, money must be confiscated through new taxes or borrowed. Either way, rebates take money out of the private sector and simply redistribute it to another group of individuals. It may be the case that targeted recipients of rebate checks have a marginally higher propensity for spending than other groups, but it’s not clear that this results in a net gain for economic growth. After all, the people from whom this money is being taken seldom have their money buried in a hole in their backyard. It’s invested and being put to productive use by the private sector even in the form of savings.
“One-time rebates and temporary business tax breaks that the President and the Democrats seem to be coalescing around are the wrong approach,” said Club for Growth President Pat Toomey. “If we truly wanted to stimulate the economy, we would make the 2001 and 2003 tax cuts permanent tomorrow. Instead of doling out temporary rebates, it is essential that we increase incentives for work, savings, and investment, and you do that by lowering marginal tax rates and making those reductions permanent so people have the confidence to plan and take risk.”
“In addition to making the 2001 and 2003 tax cuts permanent, other important measures have been embraced by the Republican Study Committee, including cutting the corporate income tax rate, lowering the tax rate on capital gains and dividends, and indexing capital gains to inflation. The key to all these proposals is their permanence. How can we expect a temporary stimulus plan to work when people know it’s only a matter of time before the economic sword hanging above their heads is going to fall? If we really want to stimulate the economy, we would remove the sword altogether.”