NEWSROOM
Commentary Articles
In The News
News Releases
Experts



Media Inquiries

Kim Cloidt
Director of Marketing & Communications
(510) 632-1366 x116
(202) 725-7722 (cell)
Send Email

Robert Ade
Communications Manager
(510) 632-1366 x114
Send Email


Subscribe



Commentary
Facebook Facebook Facebook Facebook

Contribute
Your participation will advance liberty. Join us as an Independent Institute member.



Contact Us
The Independent Institute
100 Swan Way
Oakland, CA 94621-1428

510-632-1366 Phone
510-568-6040 Fax
Send us email


Interested in working with us?  Click here for more information.

Commentary

President Plans Another (Misguided) Stimulus Rush


     
 Print 

Fresh from his recent White House-sponsored jobs summit, President Barack Obama is pushing a new economic stimulus plan intended to soften the pain of a 26-year-high unemployment rate that sees one in 10 Americans out of work.

Against all expectations, $200 billion of the money originally appropriated by Congress for bailing out financial institutions under the Troubled Asset Relief Program (TARP) either remains unspent or already has been repaid to the Treasury.

Will wonders ever cease?

Rather than use that $200 billion to either pay down the monumental federal debt or, better yet, return it to taxpayers, Obama proposes spending $50 billion to “create” additional jobs. As such, some of the TARP “surplus” money now will be used for, among other things, financing tax credits for companies that hire new employees, subsidizing public infrastructure projects that were not previously “shovel ready,” and providing tax deductions to individuals who improve energy efficiency in their homes.

Heroin addicts experience a “rush” immediately after main-lining their drug of choice. They do not at the moment grasp the long-run consequences of their health-degrading habits. With an unemployment rate unexpectedly falling to 10 percent from 10.2 percent in the past month, the Obama administration and many pundits have fallen into the same trap. But if Washington, D.C., injects a trillion dollars or more into the U.S. economy, things are bound to improve in the short run.

Yet, any such taxpayer-financed economic stimulus must, by definition, be temporary. The federal government has no resources of its own. Therefore, it only can finance its spending programs in three ways: taxing the private sector, borrowing from it or printing money. All three options impose burdens on ordinary Americans, who must pay higher taxes now or in the future, or see the values of their investments eroded by continued declines in the value of the dollar.

It pays to employ someone only if his or her contribution to market value exceeds the employer’s added cost in the form of wages and fringe benefits. Jobs credits reduce the after-tax cost of hiring new workers, but do not make what they produce worth more. A business guided by the profit motive rationally will fire people they would not have otherwise hired when the subsidy expires, as it must eventually do.

And tax credits can affect employers’ incentives counterproductively. Why not fire a current employee now and rehire the same person later to take advantage of the proposed tax credit? How about claiming the same credit by cutting the hours of one or more existing workers to create a full-time, tax credit-eligible vacancy? Some workers simply may be shifted from jobs that do not qualify for the credit to those that do, with no net effect on total employment.

President Richard Nixon famously once said that “we are all Keynesians now.” Although Obama and Federal Reserve Chairman Ben Bernanke seem to have swallowed that adage, America’s taxpayers should not be bamboozled. There’s no such thing as a free jobs lunch.

Job creation is something that can happen only in the private sector. But that requires government to get out of the way by reducing taxes across the board and eliminating oppressive regulations. If it does not adopt such market-friendly policies soon, America might as well be France or Germany, with permanently higher unemployment rates, less adaptability to change and slower rates of economic growth.


William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.

Taxing ChoiceFrom William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation? Learn More »»






Home | About Us | Blogs | Issues | Newsroom | Multimedia | Events | Publications | Centers | Students | Store | Donate

Product Catalog | RSS | Jobs | Course Adoption | Links | Privacy Policy | Site Map
Facebook Facebook Facebook Facebook
Copyright 2014 The Independent Institute