Stimulus Sedation

In my current condition of unemployment coupled with a stock market meltdown, real property collapse, and an inability to refinance a mortgage to a better [for me] cash flow, you'd think I'd be all in favor of a stimulus. I am but ...

With a record debt, continuing budget and trade deficits, and finally a little more rational consumerism, because of all the economic worries, any government stimulus spending will have at best a marginal contribution to improving our economy and only if it is large enough and spent on the right things to overcome the increased debt it causes.

For governmental deficit, stimulus, spending to have a maximum impact, it should be a rather unique event. Instead the U.S. has continually run unneeded deficits because the politicians have been unwilling to live within our means. Historically both Democrats and Republicans have dropped the ball with too much spending on items that are operating costs, not capital investments, and an unwillingness to tax appropriately to cover either, let alone both. (I know you can point to the budget surpluses of the Clinton era, but the Great Society/Vietnam War of the Johnson era trumps that and besides, the surpluses of the Clinton era were mostly a matter of luck rather than the politicians doing anything positive to achieve them.)

Of course, the massive spending and revenue reduction of both the Reagan and Bush eras top everything. Without their $8 trillion addition to the national debt, a stimulus package now would have a much greater effect.

In some ways you can say that our need for a stimulus now is partly driven by the inappropriate stimulus of the unnecessary deficit spending in years past. We've been stimulated so much we are addicts. It is much like a sugar high that is followed by a crash. Our government's massive debt is at least partially responsible for the credit contraction as it has to borrow money from the credit markets to finance its debt. This is exacerbated by a reduced source of cheap money from the Social Security fund as it turns to a net outflow. Further, the artificial exuberance, lack of regulation, and indeed the encouragement of some sectors, say housing, contributed to a bubble that requires correcting. Unfortunately, when everything corrects at the same time, we get a depression.

To keep the stimulus from being a sedative instead, kind of like an Irish Coffee, additional revenue must be found very quickly. This revenue has to come from the people and corporations that have money and can pay. If we are not going to do away with Corporate Income Taxes in favor of a Value Added Tax, or its equivalent, we need to immediately institute a flat tax on all corporate worldwide profits based on the proportion of business they do in the U.S. This will take care of a company's ability to use international transfer pricing to artificially understate their U.S. profits. (We should also eliminate all forms of corporate welfare, not limited to but certainly inclusive of selling off our national resources, such as trees, at below market rates.) If we are not going to do away with a progressive income tax on individuals, then it needs to be dramatically simplified with fewer tiers and much less taxation of the lowest income tier and much more taxation of the highest income tier.

A government that lives within its means and makes appropriate investments for the future would be more than refreshing, it would be--stimulating.