Familial Debate, Cont'd

TPI took exception (in the comments) to my last post, where I claimed that tax cuts were the best stimulus.

Tax cuts in general tend to have a lower multiplier effect than well-designed spending, but tax cuts received by the rich have a particularly low economic impact. To my knowledge, no one even disagrees with this.

Well for one, I disagree. So does he, and her, and him. And to clarify my point, I said that I was in favor of tax cuts because they are stimulative...and if there are going to be tax cuts, they might as well benefit those who will bear the most load in repaying the debt incurred by the stimulus.

The thing about tax cuts is that it is "shovel ready." Ponderous government programs, or even infrastructure spending, has the disadvantage of requiring time to spool up to full speed; jobs may be lost before the work can be started. However, with tax breaks, you have a maximum of 12 months before you feel the stimulus from those tax breaks. Let me use an example: my wife and I almost bought a house, last month. We shopped the market, talked to a realtor, a couple banks, found a house we really liked, but the house turned out to be a lemon, and needed substantial repairs before it would have passed inspection. Like, $15,000 in repairs. Which is precisely how much we would have gotten in a tax credit if the stimulus passed. So this time next year, we may have bought a house thanks to the stimulus, whereas our current plan (barring stimulus passage with first-time home buyer tax credit included) is to find a duplex and hope to get a house before our daughter starts elementary school.

Now, I cannot argue that tax breaks for the wealthy may not be the best thing, I do not have a PhD in macroeconomic policy, nor do I have much empirical evidence towards one demographic using money more recklessly than another.

However, TPI suggests that tax breaks have a lower multiplier than well-designed spending. This is most likely true. But I fail to see almost anything in the stimulus that resembles well designed spending.
True, infrastructure spending and mass transit expansion is a great idea, but its not quick work, and it shouldn't require stimulus for that work to be funded by government.

One last thought. TPI went after me because the Republicans slashed the funding that would help buoy the balance sheets for state budgets. I cannot tell if TPI is acknowledging that the nefarious practice of balancing state budgets with Federal dollars is done every year! There is no pressure on state governments to balance their budgets! Gregg Easterbrook:

Here's the update. New York state has a $6.4 billion budget shortfall in the current fiscal year, second only to California's budget problem. Recently, New York Gov. David Paterson asked the state's legislature for $1.2 billion in spending cuts -- meaning the Empire State volunteered to take responsibility for only a fraction of its self-created problem -- then called on Washington to hand Albany the rest of the money: $5.2 billion. Paterson said, "We are going to have to turn to the federal government for help." So New York is not willing to make significant spending cuts and not willing to tax itself; but perfectly happy to demand that voters in other states be taxed to bail out New York! Last week, California Gov. Arnold Schwarzenegger said the state would ask the federal government for a $7 billion loan. So California is not willing to tax itself to solve its self-created budget problems, but perfectly happy to demand that voters in other states be taxed to bail out California!
Perhaps this is what should be expected when Washington is so poorly run; the nation's capitol seems like little more than a giveaway machine. Yet numerous states, including Colorado, Oregon and Pennsylvania, have budgets in fine shape because they did not overspend, as New York and California did; or saved during surplus years (all states had a combined $74 billion surplus in fiscal 2006 -- the responsible states saved some of that amount); or are not plagued by official corruption. Why should the people who live in states that spend carefully and pay their own way be compelled to subsidize government waste and kickbacks in California and New York? And why do the mainstream media continue to depict governors as fiscal paladins when so many shift their problems, and their debts, to Washington?
Here is evidence that the fiscal switcheroo favors governors politically. Polling data from the Pew Center shows that only 37 percent of Americans have a positive impression of the federal government, while 59 percent have a positive impression of state government. Remove the bookkeeping gimmicks that send federal money to the states and state taxes would rise while the national debt declined. Favorable-impression rankings surely would improve for Washington, while governors would decline in popularity.

To which, I must add: California's debt problem is largely owed to the services provided for illegal immigrants that are not balanced because illegal immigrants don't pay taxes (or corporate taxes are not paid on their behalf or medical bills go unpaid). Which makes more sense: further debt the U.S. naturalized population to continue supporting free health care for illegal immigrants in California, or (partially) pulling the plug on Federal support for that state's budget, forcing Arnold "Hypocrisy-Is-Cute" Schwarzenegger to make spending cuts or actually do something to enforce immigration laws?


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