What Kind of Stimulus?

01/05/2009 4:25 pm EST

Focus: POLITICS

Terry Savage

Author, The Savage Truth on Money

When it comes to dealing with this recession, there is little doubt the Obama administration will have to do something. So, it seems a matter not of “if” but of “how.” There are two basic directions a stimulus plan could take—government spending or tax cuts (and there have been news reports speculating about both in recent days). But within that mixture, there will be great disagreement on how much of each there should be.  

No matter which way the program goes, it will cause realists to swallow hard and accept some illogical fiction in the name of hope!

Here are some questions about each one of these alternatives.

Government Spending

  • Can we trust the government to handle this much spending without waste and pork?
  • Is this better done through the states, which already have infrastructure spending plans, but no money?
  • Should states receive the money as a grant, or as a loan that must be repaid (i.e., creating the “fiction” that indebted states will ever collect enough revenues to repay the federal government)?
  • Who will monitor the actual use of the money?
  • What restrictions, if any, will be placed on the contactors who may receive this money? 

Cutting Taxes

  • Who gets the tax cuts? (In the past, you got the maximum bang out of cutting top tax rates, but is that feasible politically now?)
  • Are tax credits the same as tax cuts? (More than 150 million Americans who may not pay much in the way of income taxes will likely get a credit against their payroll taxes that cover Social Security and Medicare—forever doing away with the fiction that there is a separate Social Security “trust fund”!)
  • How do you distribute these tax cuts, so they will have immediate impact?  (Stimulus checks are out of fashion—except for banks, auto makers, insurance companies, etc.  Will they readjust 2009 weekly payroll withholdings?)
  • Do investment tax credits for business work any differently than Social Security tax credits for poor people? (How can you complain about tax breaks skewed to low income people because they do not pay taxes, when you create the very same thing for business?)
  • Will business tax credits actually create jobs if there is no demand for the products these investments produce?

So, what would you do to “stimulate” the economy into recovery, if anything? Please give us your ideas, even your wishful thinking.