Tuesday, October 14, 2008

Obama's economic plan

Obama has a new economic plan. Unfortunately a close reading reveals nothing more than warmed-over Keynesianism. Because of its length, let's just walk through the first section on "Immediate Action to Create Good Jobs in America":
A New American Jobs Tax Credit. Obama will provide a new temporary tax credit to companies that add jobs here in the United States. During 2009 and 2010, existing businesses will receive a $3,000 refundable tax credit for each additional full-time employee hired. For example, if a company that currently has 10 U.S. employees increases its domestic full time employment to 20 employees, this company would get a $30,000 tax credit—enough to offset the entire added payroll tax costs to the company for the first $50,000 of income for the new employees. The tax credit will benefit all companies creating net new jobs, even those struggling to make a profit.
Let's think about the example given here. If each job is even paid only $30,000, that means that an additional $300,000 in salary, plus benefits such as health insurance as well as payroll taxes. Are we really supposed to believe that a company will choose to making hiring decisions because of a small, temporary tax credit that will expire in two years? Companies hire based on the market outlook for the next several years, not because they might get some temporary savings on the payroll tax.

It is said by many that Obama's economic team is superior to McCain's, but you really have to wonder.
Raise the small business investment expensing limit to $250,000 through the end of 2009. Obama will give small businesses additional incentive to make investments and start creating jobs again by providing temporary business tax incentives through 2009. The February 2008 stimulus bill increased maximum section 179 expenses to $250,000 but this expires in December 2008. This provision will encourage all firms to pursue investment in the coming months, but will benefit small firms in particular, who generally have smaller amounts of annual property purchases and so choose to expense the cost of their acquired property.
Again, the key word here is temporary. Firms do not adjust their long-term behavior based on short-term phenomena. Like the credit itself, the salutary effects of such an action would be short-term.
Zero capital gains rate for investment in small businesses. Barack Obama believes that we need to encourage investment in small businesses to help create jobs and turn our economy around. That’s why Obama will eliminate all capital gains taxes on investments made in small and start-up businesses. Unlike John McCain, who wants to give $200 billion in new tax cuts to America’s largest and most profitable businesses, Barack Obama wants to cut taxes for the small businesses that create jobs but struggling with restricted access to credit alongside skyrocketing health care and energy costs.
If this is a good thing for small businesses, why isn't it good for all businesses?
Save one million jobs through immediate investments to rebuild America’s roads and bridges and repair our schools. The Obama emergency plan would make $25 billion immediately available in a Jobs and Growth Fund to help ensure that in-progress and fasttracked infrastructure projects are not sidelined, and to ensure that schools can meet their energy costs and undertake key repairs starting this fall. This increased investment is necessary to stem growing budget pressures on infrastructure projects. In addition, in an environment where we may face elevated unemployment levels well into 2009, making an aggressive investment in urgent, high-priority infrastructure will serve as a triple win: generating capital deployment and job creation to boost our economy in the near-term, enhancing U.S. competitiveness in the longer term, and improving the environment by adopting energy efficient school and infrastructure repairs. In total, Obama’s $25 billion investment will result in 1 million jobs created or saved, while helping to turn our economy around.
Money spent by the government doesn't appear out of nowhere. We either tax it from the existing economy or borrow from the future in the form of debt. So for this to make sense we have to believe that it is either so important that we add to the already crushing debt on future generations or we take it out of the economy and re-allocate it, essentially believing that government make better use of the money than the private sector. Given the obvious propensity for pork when it comes to infrastructure projects this is a rather dubious proposition.

And, using the numbers provided, it works out to a cool $250,000 per job "created or saved." What a bargain. And remember who pays it -- you and me.
Partner with America’s automakers to help save jobs and ensure that the next generation of clean vehicles is built in the United States. Senator Obama pushed for $50 billion in loan guarantees to help the auto industry retool, develop new battery technologies and produce the next generation of fuel efficient cars here in America. Congress passed only half of this amount – it is critical that the administration speeds up the implementation of the first half and that Congress move quickly to increase certainty by enacting the second half. In addition, Obama believes that with the tremendous uncertainty facing the auto industry, and the small and medium business suppliers who depend on them, it is critical that we keep all options on the table for helping them weather the financial crisis.
Funny how just a few paragraphs ago Obama was excoriating McCain for providing tax cuts for big businesses and now Obama is actually complaining that the $25 billion already forked over to Big Auto was insufficient and more grist for the mill is needed. In addition, the underlying premise here, that government knows better than industry what the next generation of vehicles we will need, is utterly preposterous.

That concludes the opening section. I would, however, also like to quote one part of the subsequent section, if only because it is something that Obama peddles ad nauseum:
A tax cut for 95 percent of workers and their families – plus seniors. Barack Obama proposes a permanent tax cut of $500 for workers and $1,000 for families. A first round of these tax cuts could be mailed out quickly by the IRS based on tax returns already filed for tax year 2007. In addition, Obama would extend these expedited tax credits to senior citizens who are retired as a down payment on his plan to eliminate taxes for all seniors making up to $50,000.
I'll just quote Kimberly Strassel:
To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes! How can our star enact such mathemagic? How can he "cut" zero? Abracadabra! It's called a "refundable tax credit." It involves the federal government taking money from those who do pay taxes, and writing checks to those who don't. Yes, yes, in the real world this is known as "welfare," but please try not to ruin the show.
You can read more here. It's an utter fraud.

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