What should be the first thing that Barack Obama does about the economy the moment he is sworn into office? Suggestions range from enacting a huge stimulus package to bailing out the automobile companies to helping homeowners and the unemployed.
Barack Obama seems to be bent on passing a huge economic stimulus package as a way to jump start the economy. The idea is that a lot of money-hundreds of billions of dollars-would be used to pay for everything from infrastructure construction to alternative energy projects. This in turn would create economic activity, which in turn would help struggling companies right themselves, the unemployed get employment and homeowners pay the mortgage.
The problem is that, while building roads and bridges (as long as they are needed and are not pork) and investing in technology are important, these kind of projects don’t tend to provide lasting economic growth.
First, such projects usually come on line long after the recession is over. Second, once the spending is over, the stimulus is, too. People tout the public works projects that were enacted during the New Deal, but the Great Depression did not end until World War II, long after the courts struck down much of the more onerous legislation the New Dealers had enacted to micromanage the country.
If a big, economic stimulus package won’t work, then what will? A Texas Congressman named Louie Gohmert may have a better idea. His idea is to declare a one-year holiday on paying income taxes for the year 2008. This would leave $1.2 trillion in the pockets of Americans to spend or invest as they wish. Perhaps as a down payment for his larger idea, Gohmert is proposing using the remaining $350 billion left in the recent bailout bill to finance a two-month tax holiday, which would also include a morotorium on paying social security FICA taxes.
The idea is rather simple, as it doesn’t involve a whole lot of central planning that is involved in choosing which projects to fund with a stimulus program. What’s more, unlike economic stimulus packages, a tax cut has a track record of working. President Reagan used tax cuts to help break out of the Carter-era stagflation. George W. Bush used tax cuts to alleviate the economic shocks of the collapse of the dot-com bubble and 9/11.
Enacting the Gohmert tax holiday idea would give Barack Obama and his brain trust a year to figure out how to reform the tax code. Lowering tax rates on corporate income, dividends and capital gains would be a good start. Some kind of tax simplification, perhaps returning to the two-tier system enacted by President Reagan in the late 1980s would also be a good idea.
In addition, cutting spending, especially in entitlements such as Social Security and Medicare would be a sound thing to do. Allowing people to invest their Social Security money in the capital markets and enacting health care savings accounts within medicare would also be good ideas.
Will Barack Obama even listen to such ideas? He is a Democrat and Democrats tend to trust government bureaucrats rather than the people when it comes to things like spending money and making choices about health care or retirement. But one never knows. Perhaps behind the left-wing, Chicago-style ward-heeling politician there is, struggling to get out, a statesman. Time will tell.
Sources: Financial rescue: Bolder beats bigger, Jonah Goldberg, Jewish World Review, December 1st, 2008
Break Bailout Fever: Support Gohmert’s Tax Holiday, Human Events, December 1st, 2008