The Practical Philosopher's Blog

Using the practical application of timeless wisdom to address modern issues

Proposed ‘Stimulus’ Plan Won’t Help Economy

It’s interesting that Obama has proposed an economic stimulus plan that appears to be nothing more than a monetary or welfare-like handout. I think this approach illustrates the stark difference between a Socialist view/understanding of the the world and a free-market worldview.

Current news cites that the Obama stimulus plan will equate to a $500 check to individuals and a $1000 check for couples for a total deficit expansion of several hundred billion dollars. The stated purpose of this action is that the ‘wise’ government will ‘stimulate’ consumers to spend, overcome their fears of a sagging/deteriorating economy, and cause new growth.

But what will this really do for our economy? As an individual, I will probably use this money to pay some bills. I won’t be going: “Wow! lets go on a shopping spree with our new-found wealth!” If I were a small business owner, this is essentially meaningless in terms of buying equipment, hiring more people, or any growth plan in general. The net effect is an extremely short-term buying of good-will from the masses. Since it won’t create anything and it gives people something for no effort,  the average citizen’s next question will be “When can I get another?”

If the upcoming administration had leadership with wisdom or an understanding of human nature, they would enact an actual tax cut. For the definitionally challenged, this means actually lowering our tax rates. It does not mean playing a word game to re-label giving ‘tax cuts’ to a majority of people that don’t pay any tax revenues to the government. You can’t cut the taxes of someone, or some entity, that pays zero tax dollars.

To be specific, the government needs to lower the corporate tax rates. This is a real and concrete incentive for a business to chart growth on. If I, as a small business owner, would suddenly be able to bank on keeping 5-10% more of my profits, I can crunch the numbers and look at what that dollar figure would equate to. If my business does a $1,000,000 in revenue, I can chart an expansion of people and equipment on $50,000 to $100,000 of revenue that I otherwise wouldn’t have. It is additional revenue I can solidly count on. What Socialists don’t get is that this is how people drive their business decisions. Businesses won’t look at how they can pour these additional monies into increasing their social justice/community outreach programs or improving their green image. Those things will do nothing for their bottom line profits.

The above calculation on a real tax rate reduction will be done a million times a million businesses. This in turn creates millions of new jobs and capital expenditures across the whole country. Everybody’s boat rises. There are no select victim or racial or other groups that have to be chosen to win or lose. The government, counter-intuitive to those with a short-term or Socialist world view, also ends up with an overall increase in tax revenues collected by lowering the corporate tax rate.

The above will work every time, if you can find political leaders with an understanding of objective economic outcomes to enact tax cut legislation. It will not happen if you have political leaders that desire a political/social-activist outcome that runs counter to human nature and the demonstrated success of a free-market approach. Tell your political leaders to unfetter businesses in 2009 with lower corporate tax rates and then tell them: “GET OUT OF THE WAY!”

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