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The stimulating debate over the economy

The stimulating debate over the economy

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The tussle is a fierce one indeed between President Bush and Senator Daschle over competing "economic stimulus" packages.

What's not clear is what they're fighting over. Daschle blames the sluggish economy on Bush's tax cuts and calls for … well … different tax cuts.

Bush takes Daschle to task for his spendthrift ways, and advocates instead … well … deficit spending.

Specifically, in a speech to the Center for National Policy, Daschle suggested that last year's small dose of tax relief left the country in a situation where "[W]e can shortchange critical needs, such as homeland defense, or we can raid the Social Security surplus — and even run deficits — to pay for these critical needs."

Ironically, 2001's tax cut was characterized by the National Taxpayers Union as puny in comparison to reductions championed in the past by Presidents Reagan and Kennedy.

So what does Daschle offer as an alternative to tax cuts? The senator from South Dakota champions the "right kind" of tax cut: a credit for businesses that hike their payroll costs.

As the Cato Institute's Alan Reynolds noted, "In the same breath Daschle claims President Bush's tax cut was too big, then implicitly admits that tax cuts are the best economic medicine by laying out his own tax cut plan."

But what about those "critical needs?" Are they really going begging because of the wrong kind of tax cuts?

Frankly, it's hard to find a possible object of federal spending that's suffering for a lack of largesse. After several years of budget surplus, the U.S. Treasury is back in the hole — at least partly because of more than $60 billion in spending supposedly earmarked for anti-terrorism efforts. And last summer, well before the attacks, the Associated Press reported that "[l]awmakers are ignoring President Bush's call to cut spending for home-state projects."

The spending binge included $500,000 for swine manure research in Iowa and $5 million for a Massachusetts parking garage.

In mid-November, the Washington Post found that "[t]he soaring costs of responding to the attacks … have done little so far to curb congressional appetites for courthouses, highways, dams, parks and other purely parochial items." Among Senator Daschle's "critical needs" were a million-dollar Atomic Testing History Institute in Las Vegas and $500,000 for the Montana

Sheep Institute.

Congress may be the source of much of this excess, but don't look to the White House for fiscal discipline. President Bush recently took to the stump to defend the government's out-of-control spending, and to propose more. His forthcoming budget is expected to top $2 trillion, represent-ing a significant boost in expenditures when the federal government is already awash in red ink.

Frankly, if throwing money around were the key to prosperity, the federal government would have already spent the country back to economic health. The problem though, as the squabble over taxes suggests, is that government doesn't have money of its own. Government spending in the name of "economic stimulus" — or for any other purpose — requires that taxpayers sacrifice big chunks of their paychecks.

The Ludwig von Mises Institute's Ben Powell made that point explicitly:

"Increasing government spending through fiscal stimulus packages can never help an economy recover. Government spending must be paid for, either by taxation, inflation, or debt issue. Regardless of how it is financed, it crowds out private spending."

A federal economic stimulus package may have a higher profile than millions of car payments and grocery bills, but it replaces those expenditures instead of adding on to them.

And a stimulus bill represents legislators' preferences rather than those of the people who actually earned the money.

As if that weren't enough reason to be skeptical of the debate over economic stimulus packages, there's the timing issue.

Unlike individuals who decide on purchases as they become necessary, governments make budget decisions months and even years ahead of time. The bill for all of that high-priced pork is likely to come due after the economy has regained a head of steam on its own.

And as long ago as November of 2001, the economy showed signs of reviving. That's when economists of all ideological stripes began backing away from the varied proposals for intervention.

Months later, the debate over "economic stimulus" seems increasingly irrelevant.

Of course, 2002 is a mid-term election year. The battle for control of Congress brings its own impetus for debate over taxes and spending. Since such squabbling is a given, it might as well be over something of value.

Several groups have recommended long-term reforms that promise to put economic power back in the hands of individuals.

The Cato Institute went on record in congressional testimony in favor of accelerating the already enacted income tax rate cuts.

Cato also wants to cut the capital gains tax rate and reform tax rules overall to reduce the burden on individuals and businesses.

The Heritage Foundation wants the IRS to stop snitching to overseas tax collectors on foreigners who have bank accounts in this country.

People from outside the U.S. have nearly $1 trillion deposited in U.S. banks — money that helps fuel the domestic economy. Billions of much-needed dollars are likely to go elsewhere if American bureaucrats insist on squealing to their counterparts in high-tax countries.

Americans for Tax Reform has targeted the corporate version of the Alternative Minimum Tax as worthy of abolition. "Ultimately, corpora- tions don't pay taxes; their customers do in the form of higher prices or employees do in the form of lower wages."

Of course, tax cuts mean that the government will have to trim back its spending frenzy.

But after footing the bill for swine manure research and sheep institutes while the economy falters, Americans might be forgiven for putting lawmakers on tighter allowances.

Letting individuals hold on to a greater share of their hard-earned dollars is the sort of economic stimulus that will help the country not just now, but for years to come.

J.D. Tuccille is a Flagstaff-based Senior Editor of The Henry Hazlitt Foundation's Free-Market.Net (

— Arizona Daily Sun


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