The economy is drowning right now and policy-makers need to throw it a life preserver.
Unfortunately they’re too busy arguing along partisan lines, and it looks like by the time they’re done the economy will either have stayed afloat on its own or, more likely, sunk to the bottom of the ocean.
The most contentious policy is a White House-backed retroactive repeal of the alternative minimum tax – meaning some taxes collected over the last 15 years will be returned. This tax requires profitable businesses to pay at least some money to the government, regardless of all the loopholes their high-paid accountants find. If it passes, the country’s wealthiest companies, regardless of need or efficacy, will receive huge checks from the government. IBM would get $1.4 billion, Ford $1 billion, General Motors and General Electric over $600 million each.
But backing up a step, it’s important to see how this all got started. Federal Reserve Chairman Alan Greenspan recommended a $50 billion to $100 billion stimulus plan in the days following Sept. 11. Republicans and Democrats agreed with him and, initially, even with each other. Congress drew up simple, straightforward plans that made a whole lot of sense, and the president signed off on them. The plans stated that the stimulus package should be temporary, should target those most in need and, most importantly, should have immediate effect. At this point, politicians appeared ready to pull the economy out of increasingly rough waters. Then the lobbyists stepped in. Now the plan looks less temporary, less directed at those in need and more like lobbyists take all.
If they want to get back on track and provide the economy a life ring and not an iron ball and chain, they need to axe the pork-barreling and get back to effective policy measures. One example is the plan to give businesses a one-year tax write-off for new equipment. This would be highly effective, as it provides incentives for businesses to keep expanding and spending, rather than contracting and laying off employees. A one-year duration on the program would ensure companies take advantage of the savings now and not stand around idly while the economy gets worse. Politicians who don’t agree with this need only look at auto sales. In September auto sales were down roughly 5 percent from August. Then auto dealers rolled out zero-percent financing and consumers suddenly couldn’t hold onto their money, despite their shaken confidence. Auto sales in October rose an astounding 25 percent.
The auto industry’s policy was effective because consumers could save money if they acted immediately. Offering businesses similar deals, in the form of tax write-offs, is much more effective than giving them billions and hoping they spend the money and they spend it in the United States.
