A Word of Caution for President Obama | Citizens Against Government Waste

A Word of Caution for President Obama

The WasteWatcher

President Obama and Congress are in the process of putting together a “stimulus” package in order to spur the economy and create or save 3 million jobs.  The House of Representative’s proposal contained $275 billion in tax cuts and $526 billion in “carefully targeted priority investments” for a total cost of $820 billion.  It would be better to call it a de-stimulus package because each of the 3 to 4 million jobs that the President and his allies claim to be saving and creating will cost taxpayers about $275,000.

In truth, the stimulus is nothing more than an appropriations bill on steroids that directs money to certain congressionally-favored programs.  For example, there is $50 million for grants through the National Endowment for the Arts, $253 million to spiff up buildings at the Department of Agriculture, $500 million for constructing National Institutes of Health facilities, and $726 million for the after-school snack program.  If this money was simply given to every man, woman, and child in the United States, each would receive $2,700.

Taxpayers always need to be wary when politicians talk about “investing” or “creating jobs.”  The government cannot create wealth – it can only redistribute it.  Any dollar a politician spends is a dollar taken from a business or individual taxpayer.  Those funds could have been used to expand a company, purchase something, or invest – all actions that create net jobs.  One only needs to review history to understand that the government often makes things worse.

In response to the 1929 stock market crash, President Herbert Hoover inserted the government into farming through the Federal Farm Board that subsidized wheat and cotton production, dumping the resulting surplus on a saturated world market.  He provided government loans to favored banks and businesses, raised taxes on the wealthy, and created new excise taxes on common items such as cosmetics, gasoline, and radios to pay for a bevy of government programs that were intended to spur economic growth.

His successor President Roosevelt’s New Deal augmented Hoover’s actions by creating government programs such as the National Recovery Administration, the Agricultural Adjustment Act, and the Works Progress Administration in order to put people back to work.  These programs set prices and wages, controlled production, and spent millions to build roads and buildings.  Roosevelt sustained the excise taxes, which proportionally hurt lower and middle income people, and with the Revenue Act of 1935 increased taxes on corporations and higher income individuals.  The top tax rate eventually went as high as 90 percent.

But all of Hoover’s and Roosevelt’s big government spending programs and high taxation did little to relieve America from the Great Depression.  From 1933 to 1939, unemployment averaged 19 percent, higher than the 16 percent average between 1929 and 1932.  It was not until 1941 when the U.S. entered World War 2 did unemployment drop below 10 percent. 

A far better proposal to stimulate the economy and create real wealth would be to first cut government spending.  A 10 percent cut – less than many private corporations have done – would reduce the budget by $300 billion.

Next, since the U.S. has the second highest corporate tax rate in the world, dropping the rate from 35 percent to 25 percent or less would do wonders to stimulate expansion and investment in the United States.  Plus, maintaining the 15 percent tax rate on capital gains and dividends and providing a permanent across-the-board income tax cut for individual taxpayers of at least 5 percent would insure stability in the marketplace.  Entrepreneurs, businessmen, and investors could better plan for the future knowing that tax rates would remain low.

Unfortunately, the House has passed legislation that will cost every household $6,700 in additional debt that will be paid for by future generations.  It is unlikely the bill will be changed much in the Senate.  The only good thing that can be said is raising taxes seems to be off the table, for now, until Congress realizes there is no money to pay for the stimulus.

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