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Thursday, November 27, 2008

Why Not Just Cut Taxes?

President Elect Obama has decided that the $175 billion "economic stimulus" he suggested during the campaign may not be enough to get the economy rolling again. So now, he's discussing a plan somewhere between $500 and $700 billion dollars. (GPO linked XL spread sheet. Cell BI)

To put this in perspective, that's between 40 and 60 percent of all personal income tax revenue estimated to be collected for FY 2008. If you do the low end of it, $500 billion, that would be every bit of tax income paid by the bottom 95% of tax payers; folks with an income under $153,000 in 2006. (Tax Foundation Table).

This begs the question, why not just eliminate the income tax on the lower 95% of the population for the next year or so? That seems to be the simple solution to getting that money out there. But there is are political reasons it won't be done.

Simply put, Mom and Pop feel better about getting a check from Uncle Sugar than they do about seeing their paycheck go up a few bucks. Over 40% of tax payers complain about their income tax, yet don't actually pay any. They see the money come out of their check, but then come April, get a refund with tax credits that is more than they paid in. They like that check, and seeing taxes deducted over the course of a year gives them something to bitch about, and politicians a way to claim the little guy is being screwed.

The second reason is that by cutting taxes directly, you aren't able to pay off the lobbies and interest groups that got you elected. If instead you send that $175 billion back to tax payers, and spend the other $325 billion on infrastructure projects, you can make a lot of folks in a lot of industries that invested in you happy.

For those not familiar with this method, it's known as the Chicago way. Our state leaders; the mentors of Barack Obama; have become the national experts at buying votes from interest groups with OPM (other peoples money). It was a trend started in Chicago (hence the name) to keep the Original Mayor Daley in power, and has spread to our state capital in a big way. Big enough to have the last Governor in prison and the current one under investigation by the feds.

If you think you need help from road builders, get a federal grant and spend a billion or so, spread among the 10 biggest, and redo every major freeway in Chicago, at once. Want help from health care providers, expand the state health care system to pay for just about anyone, then let the judges say it's illegal. It's how we do business here in Illinois.

President Obama would like to carry this quaint midwest tradition to the White House, deficit be damned. And, great for his union buddies, The Davis Bacon Act makes sure that all that infrastructure money gets funneled through them.

Yes, a tax cut would get the money back to the people in the most efficient manner, but let's not get confused here. The purpose of the economic stimulus expansion has much less to do with you, the tax payer getting something than it does with paying back political backers.

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Blogger John Ruberry said...

Funny, Obama hasn't called on any of the geniuses working with Todd "Urkel" Stroger here in Cook County to fix the economy.

9:22 PM  

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