Stamp Of Disapproval
By INVESTOR'S BUSINESS DAILY
Wednesday, January 28, 2009 4:20 PM PT
Economy: House Speaker Nancy Pelosi thinks spending more on food stamps and unemployment insurance is more important than tax cuts and infrastructure. Has she ever gotten a job from a poor person?
In a recession with rising unemployment, a case can be made for spending more on food stamps and unemployment insurance. But it's not stimulus — and to put it in a so-called stimulus package that already spends precious little on real job-creating activities is absurd. Put it in a separate bill, and let it go through the regular legislative process.
The American Recovery and Reinvestment Act will devote $20 billion to "provide nutrition assistance to modest-income families and to lift restrictions that limit the amount of time individuals can receive food stamps, according to a summary of the plan released last week by the House Appropriations Committee.
"(F)ood stamps and unemployment insurance, which affect the people in the states, are necessary at this time when funds are short and the economy is down, (and) actually have the most stimulative effect on the economy," Pelosi said in a telephone press conference on Tuesday. Only if you can buy an American-made SUV with them.
"Actually, these investments bring a bigger return than any tax cuts," she said, listing her stimulus priorities as: "food stamps first, unemployment insurance next, infrastructure after that, and it goes on from there."
This economy needs more employees, more employers and more investment — three things you can't buy with food stamps.
For a proposal that's supposed to jump-start the economy, the proposal only spends one-seventh of the money in the first year, and what it does spend on actual job-creating activities will take years to trickle down throughout the economy, perhaps even after the recession is over. It is likely this package will create more jobs in government than in the private sector.
Among the things we need to do is cut corporate tax rates. According to the Organization for Economic Cooperation, for the 17th consecutive year our average combined federal and state tax rate on corporations is 50% higher than the average of our international competitors. American businesses pay the second-highest business taxes in the world — 35%.
The average European nation has tax rates on corporate income some 10 percentage points lower than ours. The OECD in a new study concludes that "corporate taxes are most harmful for growth" and that "investment is adversely affected by corporate taxation."
We also need to cut taxes on small businesses. Since the mid-1990s, the small-business sector has created 78.9% of the net new jobs in the United States, reports the Office of Advocacy at the Small Business Administration. Some 59 million workers are employed in the small-business sector that takes the most risks and creates the most jobs.
Across-the-board cuts in capital gains taxes would also be a good idea. As President John F. Kennedy put it in 1963: "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential growth in the economy." It stifles job creation.
Even President Bill Clinton recognized the benefits of cutting the capital gains tax. In 1997, he lowered the rate to 20% from 28%. By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a threefold increase over 1995 levels, and by 1999, it had doubled yet again.
With this gusher of risk capital, the economy averaged 4.2% real growth per year from 1997 to 2000. Employment during that period increased by 11.5 million jobs, and real wages grew by 6.5%. The rising tide lifted all our boats.
You can help a man buy a fish or you can help him buy a fishing boat. Unfortunately, Nancy Pelosi can't grasp the difference and what is best for economic recovery.
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