Thursday, January 29, 2009

Stimulus, Schwimulus

First, let met attest that I wish President Obama every possible success, because I and my family and friends stand to benefit from that success, were it to happen. But I fear he has surrounded himself with economic morons who just don't get it.

President George W. Bush also inherited a recession from the Clinton Administration, but quickly patched it with an across-the-board tax cut. Of course, the Democrats called it a "tax cut for the rich", but since most Democrats have never worked in the "real world", it's understandable that they did not understand it was actually a tax cut for small business... the backbone of the American success story.

Yes, most small businesses... Sole Proprietorships, Limited Partnerships, Subchapter S Corporations and others pay their business taxes at the personal tax rate, and are lumped in with individual taxpayers. To them, a tax break allowed them to retain a little more of their hard-earned business income, with which they obviously reinvested in their companies.. purchasing new equipment, hiring new employees, and generally growing their businesses. The end result was the net Federal tax revenues were even greater than had the tax cut never been enacted. This is a magic trick learned by Kennedy, Reagan, and Bush who all used it successfully.

But Obama has missed this subtle point: To boost the economy, you need
fresh new capital injected into the system. And there's nothing fresher or newer than a hard-earned dollar from the sweat of an honest small businessman's brow. That points to only one possible alternative - a tax cut for the "rich" ( again ).

You see, here's the way the current tax code works:
  • The top 5% wage earners currently pay about 50% of all the personal income taxes.
  • The top 50% wage earners currently pay about 95% of all the personal income taxes.
That leaves about half of the workers paying little or no taxes at all.

Government spending, such as proposed and just passed by the House, is not fresh new capital. It is borrowed money which must be repaid. Taking a dollar from one pocket and putting it in the other is not a "stimulus", it is economic smoke and mirrors. With his "stimulus" package, Obama hopes to produce 4 million new jobs... at a cost of $204,750 per job. The jobs will be temporary, of course, for they will disappear as soon as the money runs out or the bridge has been repaired, whichever occurs first. While shoring up our infrastructure is a good idea in general, unfortunately a rebuilt bridge or highway or ATV path is not a revenue producer... so few if any of his proposed spending targets will result in any permanent boost to the economy. Almost a trillion bucks down the toilet.

My own small company could likely create two or three new good-paying permanent jobs with a fresh, non-taxable cash injection of $204,750 - which could easily be filled with local talent here in Backwoods, Vermont. But it appears the Obama administration would prefer only one relatively unskilled and temporary worker to benefit... with the government bureaucrats running the program skimming off the balance, naturally.

And who would be paying back the $819 billion? Why the "rich", of course... falling squarely on the shoulders of our nations small businesses, as I have previously discussed. And since an enormous portion of the proposed spending spree is dedicated to things which have nothing to do with economic stimulus, the net effect on the aforementioned "rich" small business backbone will be a net loss. And the inevitable result of that net loss will be, in the end, just another nail in the coffin of the American Dream.

Stimulus, Schwimulus... the Emperor has no Clothes.

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