Underlying all opinions about the stimulus package, I think many of us have a wary sense that it may not work. This morning I'm even less convinced it will work. Why? Because there seem to be questions about whether Chrysler should be saved. Huh?
Chrysler has at least two big problems: It doesn't have attractive, small cars, or a global distribution system.
The staunchest defenders of the free market go all soft when it comes to allowing a big corporation fail, even if it has failed and been bailed out before. The ball is then thrown to the liberals who wish the free market were allowed more freedom when it comes to failed or overly powerful corporations but who don't want to see the workers lose their jobs. But wouldn't it be less costly and more economically sensible for us to subsidize retraining and new jobs than allow Chrysler to muddle through another period of trial and error on the way to a third bailout?
Cerberus [Capital Management, Chrysler's current owner] is desperate to get out. Patrick Anderson, a Michigan
economist who focuses on the auto industry, says the fact that Cerberus
and Fiat won't support Chrysler makes the pitch for government aid that
much harder.
"If normal investors don't want to put their own
money at risk, we should be asking ourselves whether the taxpayers
should ever put a dime in there," he says.
Right. And spend the money instead on those who are laid off as Chrysler dies.
David Cay Johnston, the tax policy expert who used to report for the New York Times is working independently now. He made some interesting comments in an interview today.
How effective are tax cut in creating new jobs?
There's zero evidence that they've done this when we've used them over the last eight years. Last year we had a tax cut and we continued to lose jobs.
But if you cut taxes, you put more money in people's (and business's) pockets and they spend more?
They may save more as well. It's unlikely they're going to hire people. I'm also the chairman of the board of a small company. People don't hire an extra worker because of a tax cut, we hire an extra worker when there's most demand for our services and we need someone to do the work.
Is there any tax provision currently part of this bill that seems likely to put money in consumers' pockets in ways they could conceivably spend it?
Well, there's about $142 billion of tax credit relief. The problem is we know from the Bush tax cuts of this kind that people tended to save that money, not to spend it. There's a provision in here that will let you deduct the sales tax if you buy a vehicle under $50,000. Well, the majority of taxpayers don't itemize and won't get this benefit. What it will tend to do is simply encourage someone who was going to buy a car after this period ends to move it up a few months into this period. That will help a little bit but fundamentally that's not really helpful. The point of a stimulus bill is not to encourage tax savings but to encourage spending, which is what we need in the short run in the economy.
Would it be so bad if people did take their tax credits and save them?
We have a serious problem with inadequate savings by individuals -- people not having nest-eggs. Fewer than half of American taxpayers have any taxable interest income, which means they don't have any savings in a savings account. That's a serious problem. But the crisis we have right now is one of inadequate demand -- excessive supply, inadequate demand. The focus of our efforts should on priming the pump, on getting spending going so that people stay employed.
I wonder what a conservative columnist or Republican lawmaker might say. Wouldn't they say, "Look at Reagan's tax cuts in the '80's when we had an economic boom"?
You know, we've turned tax cuts into something of a secular religion, that tax cuts will solve our problems. The fact is that we have a government that's spending far more than it levies. That's becoming a huge drag on our economy because we have spent money we don't have. This year, the equivalent of all the taxes that you pay in January through part of May just go to pay interest on the national debt. We fundamentally need to reform our system so that our tax policies are in line with the economy we have today and they grease the wheels of commerce instead of throwing sand into the gears. But tax cuts by themselves are not the solution to our problems. They have become a dogma that's unquestioned in Washington.
I'm with the economists who say we need to throw a lot more money into stimulating spending and a lot more political effort into overhauling the tax system rather than falling back on tax cuts as a cure-all.
