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Tuesday, January 13, 2009

The Republicans 2010 Opening

I have been a bit surprised by just how in your face most liberals and Democrats have responded to Obama's stimulus. Liberals and Democrats have a reputation as tax and spend, but during the campaign, their language was much more conciliatory. Now, in response to Obama's "stunning" proposal to include some tax cuts (really more like credits) along with a plethora of spending, we see the liberals showing their true economic colors. Here is a taste of how Democrats in Congress responded to his tax cuts.

President-elect Barack Obama's proposed tax cuts ran into opposition Thursday from senators in his own party who said they wouldn't do much to stimulate the economy or create jobs. Senators from both parties agreed that Congress should do something to stimulate the economy. But Democratic senators emerging from a private meeting of the Senate Finance Committee criticized business and individual tax cuts in Obama's stimulus plan.

They were especially critical of a proposed $3,000 tax credit for companies that hire or retrain workers.

"If I'm a business person, it's unlikely if you give me a several-thousand-dollar credit that I'm going to hire people if I can't sell the products they're producing," said Sen. Kent Conrad, D-N.D., a member of the committee.

"That to me is just misdirected," Conrad said.

Sen John Kerry, D-Mass., said, "I'd rather spend the money on the infrastructure, on direct investment, on energy conversion, on other kinds of things that much more directly, much more rapidly and much more certainly create a real job."

Here is a taste of how liberal punditry views his stimulus.

There are three serious dangers in the debate about the stimulus package. The first is that President Obama will think too small. The second is that he will think too bipartisan. The third is that the public will be swayed by myths, such as the claim that infrastructure spending just takes too long to gear up, or that the deficit is the paramount problem.

The economy is now collapsing at an accelerating rate. With the 2008 job loss at the worst annual level since 1945, and even sound businesses unable to get ordinary credit from a traumatized banking system, this will quickly become a classic downward depression spiral unless government acts at a very large scale, and fast. The GDP probably shrank at a rate of at least five percent in the fourth quarter of 2008, and the nosedive will be worse this quarter.

There is simply no good news anywhere in the economy, as the costs of the financial crash keep reverberating. Yet a stimulus in the range of $400 billion a year is less than three percent of GDP. (It's bizarre that the incoming administration uses two-year numbers. They only make the figure sound too large, rather than too small.)

Of course, no one spoke for liberals better than Paul Krugman.

Last week President-elect Barack Obama was asked to respond to critics who say that his stimulus plan won’t do enough to help the economy. Mr. Obama answered that he wants to hear ideas about “how to spend money efficiently and effectively to jump-start the economy.”

O.K., I’ll bite — although as I’ll explain shortly, the “jump-start” metaphor is part of the problem.

First, Mr. Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise.

Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?

Never has the tax and spend philosophy so unabashedly been expoused by an entire party and ideology. The more spending the better, and tax cuts are "ineffective". Now, the liberals feel entitled and empowered, and the economic climate allows them this feeling. Furthermore, the country has just finished eight years of what the press has characterized as the opposite. As such, tax and spend will likely get broad approval for now. Of course, it actually has to work in order for it to get broad approval in the 2010 elections.

This offers the Republicans an opening. In order to regain any electoral dominance, they must once again offer their own solutions. They can't be Democrats light. If Democrats are going to be tax and spend, the Republicans must be tax cuts and fiscal responsibility. Rather than merely showing some sort of conciliatory tone of "working together", the Republicans in Congress must present their own alternative plan. This plan should include making the tax cuts permanent, cutting the corporate tax rate by 10%, making the capital gains tax 15% permanently, and the permanent removal of the inheritance tax. Furthermore, this should be combined with a plan to hold discretionary spending on all non essential government activities. This plan must be written, put on the web, and referred to during the campaign.

Of course, this plan has no hope of succeeding. It is also the best sort of plan. It is a plan that can be viewed strictly in the hypothetical. For instance, we know that Obama's plan will add to the deficit. This plan won't. Since it is strictly hypothetical, the Republicans can continue to say that their plan to limit discretionary spending would have kept the deficit in check.

More than that, even if Obama's stimulus eventually works, it's very unlikely that in the next two years it will work. Much of his spending will take at least a year just to begin. Before it begins, it will have to be borrowed. As such, whatever effect it may have, it will be felt likely after the elections in November of 2010.

In the meantime, the Republicans can continue to hammer home that their plan of cutting all these taxes would have jump started the economy without ballooning the deficit. How do you argue with them? After all, their plan would be strictly hypothetical. It would also be the antithesis of tax and spend. After enduring two years of tax and spend liberalism, the public is likely to be reminded of why it fails over and over. The public will then be soured on the idea. They will again welcome low taxes and fiscal responsibility.

At this point, the Republicans could make a bold maneuver. They could insist that Obama can no longer be trusted to lead the economy. The economy will be far too weak "to allow for the same failed path another two years". They could ask the public for a veto proof majority in 2010. Whether the Republicans got it or not, such high expectations would, at the minimum, create an unprecedented shift in power. With it, they would have the mandate to install fiscally conservative policies again starting in 2010. All of this could happen, but first, they need to present their plan and that plan must get back to the conservative roots.


Anonymous said...

Someone has to clean up the mess left by the supply-side economics of Bush and co.

The money sure has "trickled-down" NOT!

mike volpe said...

If you think the current problems of the economy have anything to do with supply side economics that is only because you have no understanding of economics.

Anonymous said...

Demand-side economics is making a big come back. Get used to it.

Stop whining about every small thing Barack Obama does and start reflecting on the consequences of unrestricted laissez-faire supply-side economics on the American economy.

The failed economic policy of George Bush may not be the only cause, but it is a big part of it. Who has been the President for the last 8 years?

Where is your humility?

mike volpe said...

My humility. What did I cause this? Blaming laissez faire for all of this is extremely simplistic. This was caused by a variety of factors and government interference is just as responsible as so called laissez faire. Besides this was caused through mass fraud. Laissez faire can't be blamed for that. The government did not enforce the prosecution of this fraud. Blame Bush for that, but laissez faire.