There has been a lot of news about the President’s economic stimulus plan and the problems of getting the Republicans to come on board. One of the biggest sticking points is the ration of government spending to tax cuts.  Let us just take a look at what tax cuts and spending as referenced in the proposal changes…

• First of all, government spending actually gives a better return on the dollar.
• Every dollar spent by the government translates to $1.02 to $1.38 of economic benefits.  That dollar spent by the government pays for resources and labor used in the U.S. In other words, the money stays in the U.S., goes into U.S. tax payer pockets as income, and actually does something for the people.
• Every dollar in tax cuts translates into about 30¢ into the economy – the tax refunds and breaks to people end up in savings accounts, paying bills, or paying down debts.  Hardly does that money actually go to new spending.
• Spending by government means the dollar stays in the U.S., spending by people sends dollars overseas, thus weakening the dollar.
• Tax breaks for small businesses, though noble, is not much help in the economy.  Again, small businesses will use the tax breaks not to spend on new equipment, upgrades, and new jobs, but on paying down debt.  Yes, it is good to pay down debt, but it does nothing to stimulate the economy.
• Tax breaks for big business (does Trickle Down Theory ring a bell) has the same problem as small business breaks added that any extra money will be given to stockholders.  Big business is notorious for not using money to upgrade, improve, and create jobs.
• Tax breaks will not stimulate investment.  In the past, it has been Wall Street that has drained the economy and money by companies buying back stock and paying dividends.  And who has all that stock… it is not you and me, skippy, who are buying the goods and struggling to put food on the table.
• Business growth comes by sales, not investment capital.  A company is not going to dive into risky investment just because there is more cash lying around.  Sales stimulates growth because then companies have solid evidence that there will be more money on the heels of the current sales.  Money the government spends on projects employ people who then will be more willing to spend knowing that they will still have a job.
• Government spending creates jobs, particularly the plan as put forth by the President.  Those who have been laid-off will be more able to find jobs.  Pay attention because this can get complicated…
• Jim works for a software company and was laid-off.  Government starts building roads.  Though Jim does not have a clue on how to build roads, someone else does named Carl.  So Carl gets hired along with other people.  Maybe this company suddenly needs more IT people to handle the increase in data.  Maybe Jim can doe that job and because the company has more money coming in it will hire Jim.  Or that company sees a chance with the new money and employees to upgrade its systems, Jim gets rehired to his old job.  Now we have a lot less people using unemployment benefits.  Hey, the government just saved some money.
• Bill is a teacher about to lose his job because of state budget crisis.  State gets more education funds.  Bill keeps his job, can continue to give that kid having problem in math the extra help.  That kid grows up, goes to college, and finds a job at Jim’s software company that didn’t go bust because of the stimulated economy making much more money that working at a fast food chain so in turn he has more taxable income.
• Yes, that little bit of spending on that road made an enormous impact.
• The other scenario, tax break instead went to a company that used the money to pay more dividends to a stockholder Sam that put it away in savings.  Jim didn’t get his job back, Carl stayed on unemployment, Bill lost his job, and the kid wasn’t able to get the extra help he needed because there was not enough teachers. Yes, Sam has more money from his reduction in capital gains, lower taxes, and higher dividends. of course Sam could be altruistic, but history proves otherwise (see what got us into this mess in the first place).

That is just my opinion, but it is backed by this guy and this guy as well as in this interview.

Of course, that federal wage tax holiday would work for me as I’d would by more groceries and some clothes.

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