A stimulus package should encourage spending. In that respect, it's ironic to rely on this tool, since an orgy of debt heavy consumer spending on credit cards and silly mortgages is what got us here in the first place. A mild, several year long recession would likely be good for the economy in the long-term.
What it needs is a controlled burn in the forest to clear out the dead wood. That's what a mild recession would do for us, and we probably should have had one a couple years ago. But we didn't, and that controlled burn has now turned into a massive conflagration set to level a major metropolis. It's too severe to just let it burn. Thus, I am resigned to a massive stimulus package.
That package should focus on infrastructure -- transit systems, roads, new power transmission lines, enhanced nationwide broadband access, new energy technology, new materials, bridges, space exploration, and other items of that ilk. Some of these projects may be pork, but that's okay. The point is to put people to work -- get those private construction companies moving again. Make sure their employees spend money in their communities and employ even more people.
At the end of the stimulus period, either the economy will be moving again, or it won't. If it is, that's great. If not, well, at least we will have all this new infrastructure which we desperately need. And people had work. The money will not be wasted.
An additional benefit of the massive infrastructure spending is that not only will we get this cool new stuff, we'll get it cheap. People will work for less money. Steel, oil, and other raw materials are cheaper than they have been for years.
Plus, if we make these investments only when "we can afford it" in a strong economy we are also stealing labor and resources from the private sector's own growth initiatives. Let's get the infrastructure done now when we don't have to compete with the private sector. The country will be stronger for it and already have the key blocks in place when the next boom begins.
Of course this is all money the government is borrowing and we have to pay back, but that is also cheaper than it has been for years.
If you have the capacity to borrow and spend money this is now the best, cheapest possible time to do it.
There was a lot of stuff like that in the House version of the bill.
My concern is the tax cuts. The $800 billion package include more than $200 billion in tax cuts and rebates. The latest details are a bit challenging to nail down.
The problem with tax cuts and government stimulus checks in a bad economy is that they don't encourage spending. Responsible people will not spend that money on new stuff. Instead, it will go to pay down bills. Or it will go into savings for the hard times ahead.
And that's exactly what people should do with those savings. That demonstrates great personal responsibility.
But it won't stimulate the economy. It won't get other people employed. It won't bring more manufacturing on line. It won't drive increased investment by technology companies.
In short, it won't move things forward.
But I don't see anyone opposing middle class tax cuts anytime soon. As much as I hate to say it, the best compromise will be to leave the tax rates alone. Don't send out a "stimulus" check. Instead, provide tax credits for purchases.
I normally don't like tax credits and deductions. They make completing tax forms more complicated than they should be and are one of the reasons our tax code is such a mess.
But the point of the tax reductions in the bill isn't to save people money. It's to stimulate the economy.
So let's replace those tax cuts with rebates for buying things. For education. Or for buying a new, energy efficient car. Or for making substantial home improvements (spend $10K on your kitchen? Get a $5K tax credit). Or for paying for child care. Or for moving to a part of the country that needs a specific set of skills.
By putting those tax reductions in the form of tax credits, we take the money out of the savings accounts and put it to working creating jobs for people. The people in those jobs can now, in turn, make their own purchase.
Saving money doesn't move the economy forward. Spending does. Whether that spending is private or tax payer funded doesn't matter. Nothing happens until someone buys something. And that's what a stimulus package needs to encourage.
Tax credits for buying stuff will do that. Tax rate cuts and generic stimulus checks will not.