January 18, 2008

Economic stimulus should focus on consumers---not corporations 

This week Federal Reserve Chairman Ben Bernanke called for an immediate economic stimulus program in order to avoid recession.  

The centerpiece of the Bush Administration’s response is corporate tax cuts. A bad idea? Not exactly. But not exactly a surefire way to get the economy moving, either.  A corporate tax break promises to swell corporate profits; but it won’t necessarily convince companies to start hiring again. Companies will start hiring again when there is more consumer demand for the products and services they provide. This ultimately means that a stimulus package should directed toward living rooms on Main Street, not boardrooms on Wall Street.  

 

To his credit, George W. Bush has proposed more tax cuts for private citizens as well as corporations. This writer, like most of you, is all for reducing individual tax burdens. Nevertheless, there is some doubt as to whether or not tax cuts are what the American consumer needs most urgently. When I listen to my fellow consumers talking around the water cooler, at the gym, wherever, tax rates seldom come up as the number one concern these days. What is making consumers tighten their wallets? Here are a few ideas…  

Gasoline prices: We are now living with $3 per gallon gasoline----but no one who depends on the stuff (just about every business and consumer in the country) can thrive with fuel prices at these levels. Bush has finally tapped his much vaunted clout with the Saudi royals to push for an increase in OPEC output. He should have been doing this back in 2005 or 2006.  

Manufacturing jobs: Manufacturing has long been the bedrock of the American economy. We can’t all be copywriters, internet tycoons, or financial advisors. Manufacturing jobs pave the way for broad-based interclass mobility. My grandfather began life as the son of sharecropping farmers. After World War II, he landed a series of jobs in manufacturing. By the time he retired, he had the quintessential American dream: a home, savings, and a better life for his children. Millions of other Americans of that generation enjoyed the same American dream----thanks to U.S. manufacturing. America’s manufacturers still provide the American dream---to workers in China. Bush should propose a new series of carrot-and-stick tax policies designed to keep manufacturing jobs at home. This would reduce our ever widening gap between rich and poor, and allow more people to work their way up from the lower ranks of the economy. (And by the way, this would also create more opportunities for copywriters, internet tycoons, and financial advisors.)  

Reduce foreign aid and foreign debt: A full enumeration is beyond the scope of this post; but suffice it to say that an astronomical amount of our tax dollars go overseas in the form of foreign aid. Moreover, much of this aid is siphoned off by corrupt governments abroad. In any case, foreign aid dollars don’t benefit the U.S. economy.  

If we keep more money at home, we will have more money to pay for better health care, better education, and much needed upgrades to our national infrastructure. (Remember the bridge collapse last summer?) Empires---even benevolent ones like the United States and Great Britain---eventually spend themselves into financial oblivion. We need to take care of ourselves a bit more for a while. As I pointed out in a previous post, our debt situation has now become so severe that the Peoples Republic of China can bring about major fluctuations in the value of our national currency.  

Bill Clinton paid down the national debt. George Bush has made us beholden to the government of China. (Note: The Iraq war, by the way, is the ultimate form of foreign aid. Here we are literally trying to build a country from scratch, providing security, infrastructure, and other forms of benefits for an entire nation in the Middle East.)  

So what about those corporate tax cuts as a way to get the economy moving again? Corporate tax cuts probably won’t hurt, but they aren’t much of a solution by themselves. Corporate tax relief is likely to ramp up the economic engine unless we address these more fundamental problems.