In his Labor Day speech last Monday, President Obama outlined his plan for another stimulus. He wants to spend $50B more on infrastructure to improve the nations' three R's: roads, rails, and runways, similar to his first Stimulus Bill. Also included in his New Stimulus is a targeted tax credit which allows businesses to write off investments in equipment and plants. There's also a tax break for research and experimentation thrown in.
Wow, that's one whole paragraph with no snark. I must be slipping.
In the name of all that's fair, I can't really fault the President for trying. He's slowly starting to understand what it's going to take to get our economic engine to start. Tax breaks for business are what we need, along with a drastic reduction in the government's footprint. However, there's a right way and a wrong way to do almost anything. Targeted tax cuts are the wrong way.
The Obama economic team lacks a firm grasp of free market economics. Indeed, their proposals so far have failed in spectacular fashion The outgoing Christina Romer recently admitted she had no clue what she was doing. Rush Limbaugh pointed out her lack of business experience during his radio show yesterday.
Obama's tax cut proposal for business is a step in the right direction, but he still manages to get that wrong. It's due to two flawed concepts: they're targeted and temporary.
Our President apparently likes picking winners and losers. That's somewhat understandable given his early home life. Many things happened to him that were beyond his control, primarily the fact that his parents abandoned him in order to study radical political theory at the feet of real radicals. Unable to control his situation as a youngster, his frustration remained with him into adulthood, when he was finally able to gain a modicum of control, only this time, over other people. This psychological yearning was probably the main reason he wanted to get into politics.
When carried forward to today, we see this emotional scar in the form of favoritism, primarily shown towards those who are supportive of him, either directly or indirectly. The takeover of General Motors and Chrysler Corporation are prime examples of this. As I pointed out in yesterday's post, we already had a mechanism which would have allowed those companies to restructure their debt: it's called bankruptcy, of which there are several types, suitable for the many different instances of financial trouble.
President Obama could have, and should have, allowed these companies to file for bankruptcy protection. We know now why he didn't: bankruptcy would have permitted these corporations to renegotiate the contracts with their respective unions, a move that would almost certainly have caused the union members to receive a reduced wage and benefit package. Since the labor unions contributed handsomely to his presidential campaign, their support would have been reduced, since a percentage of union dues go to political efforts, often against the wishes of the rank and file members.
Obama's favoritism towards selected groups is on display again in this latest Stimulus proposal. Overall, tax breaks for businesses are welcome and needed, but the problem is the fact that they're only for selected groups, or for specific reasons, or temporary. That's no way to foster long term economic growth.
What is needed is permanent tax relief for all businesses, regardless of the size or the nature of their investments. Tax credits for new plants and machinery are great, but what if your company needs to spend money on something else? Then what? Wouldn't it be far better for the country to reduce taxes for as many businesses as possible? That would go a long way towards government acting for the "general welfare." Or not acting, depending on how you look at it.
This notion of Washington picking winners and losers is an idea whose time has come to die. Other administrations have also attempted this with similar results: they just weren't enough to benefit everybody.
The allure of power causes people to do some mighty unwise things.