Last week, President Obama signed into law several hundred billions of dollars in new stimulus spending.  This week, we’re going to learn how he proposes to pay for it.  And as I have long predicted, the bill is coming due…and you and me are going to be asked to pick it up.

Obama plans to raise taxes.

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/21/AR2009022100911_pf.html

Here is how the Washington Post described it:

“Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3..5 million would be maintained at the current rate of 45 percent.”

My question is: does Obama really believe his own rhetoric about how bad this economy is?  If so, then why is planning to raise taxes? In times of economic stress, we need economic incentives to get businesses moving again.  Raising the capital gains tax, for example, does just the opposite since it says to a business owner that he will have to pay a higher rate for any capital gains he he gets for that year.

I’m all in favor of tax reform.  But this is not it.  We need tax policy that encourages growth, not one that discourages growth.

-Randy Hill

So Senator Gregg decided not to become Secretary Gregg:
http://online.wsj.com/article/SB123447333424979131.html?mod=djemalertNEWS

I realize some will see this as another mistake by the Obama administration.  But I blame Senator Judd Gregg.  As a three-term senator who is well-versed on the issues, why is he just now discovering how bad the stimulus plan is?  If only he had been reading my blog the last few weeks, he would have known! It’s absurd for Gregg to use the stimulus as the reason he no longer wants to be Commerce Secretary.  The stimulus plan was just as bad a few days ago when he first signed on to join the Obama cabinet.

Here is what Gregg said in withdrawing his name from consideration:

“The bottom line is this was simply a bridge too far for me….The president asked me to do it. I said yes. That was my mistake, not his….I should have focused sooner…on the implications of being in the cabinet.”

In other words, Gregg wanted to be a cabinet secretary so bad that he didn’t bother to think about the philosophical differences he might have with a liberal president. That’s ridiculous.

But then, so is the number of Obama nominee’s who haven’t figured out how to pay taxes!

-Randy Hill

Part of the Obama appeal in the Democratic primaries was that he was the anti-Clinton. Not only did he run against a Clinton (Hillary), he essentially promised to be different than another Clinton (Bill). This was a man who was going to “change the way Washington does business.” But this week, Obama showed some Clinton-like wordsmithing on his stimulus package.

Obama has repeatedly assured us this week that “this bill does not have a single earmark in it,” by which he means that specific money was not targeted to specific projects.  Except that there are earmarks in it:

http://apnews.myway.com/article/20090209/D968BMTO0.html

According to the Associated Press, the bill has:

“$2 billion for a clean-coal power plant with specifications matching one in Mattoon, Ill., $10 million for urban canals, $2 billion for manufacturing advanced batteries for hybrid cars, and $255 million for a polar icebreaker and other ‘priority procurements’ by the Coast Guard.”

Now, I’m not sure what to call money for a polar icebreaker.  If that’s not an earmark, then I don’t know what is.  In fact, this week Obama made a stop in Elkhart, Indiana to pitch his stimulus package.  And what did he say to the people of Elkhart? He said his stimulus plan would fund “roads like U.S. 31 here in Indiana that Hoosiers count on…..And I know that a new overpass downtown would make a big difference for businesses and families right here in Elkhart.”

So the people of Indiana will get some money out of the stimulus…just don’t call it an earmark!

-Randy Hill

A funny thing happened on the way to passing the stimulus package. Congress can’t convince itself to pass it:

http://www.cnn.com/2009/POLITICS/02/08/congress.economy/index.html

It seems that the more people keep looking at this bill, the less they like it.  As previously stated on this blog, I support passing a stimulus bill.  Just not this one. The problem with this stimulus bill is that it doesn’t have enough stimulus but it leaves a big bill for our kids and grandkids to pay.  Here is how John McCain described it:

“We need to spend money on infrastructure and on other programs that will immediately put people to work. But this is not it.”

No, it’s not. What’s worse, it may end up hurting our economy more than it helps.  According to the nonpartisan Congressional Budget Office:

“…the long-term effect of that much government spending over the next decade could ‘crowd out’ private investment, lowering long-term economic growth forecasts by 0.1 percent to 0.3 percent by 2019.”

It’s not too late for Washington to do the right: scrap this bill and start over. We need a bill that will mean dollars for our economy and will make sense for our future.

-Randy Hill

This week the so-called stimulus package heads to the Senate.  The House version was bad enough. But it seems the Senate intends to make it even worse:

http://online.wsj.com/article/SB123358404214039275.html

Here is how the Wall Street Journal described what’s going on in the Senate:

“Florida citrus growers, California wine growers and a range of agricultural interests are pushing a tiny change that would allow farmers to more quickly depreciate new fields. High-tech and pharmaceutical companies want to save billions in taxes by including a plan that would allow them to bring overseas profits back home at lower tax rates. Labor unions are pressing Congress to make sure that new government funding for green technology results in jobs with good pay and benefits for workers.”

Again, I raise the simple question: how much of this is going to create jobs? In my opinion, not much.  And notice who is able to get the Senate to include their provisions: big agriculture, the high-tech industry, pharmaceuticals.  These folks have money and that means they have lobbyists.  The rest of us don’t have lobbyists.

Funny, but I thought the new administration was going to be tough on lobbyists.

-Randy Hill

This week the House of Representatives approved what I call the Un-Stimulus Package.  Revealingly, not one Republican member of the House voted in favor of it. Granted, many of these same Republicans voted for Bush budgets that were too big, too.  But better late than never.  I’m glad someone is standing up for common sense in federal spending.

My main objection continues to be this bill will not do enough to create new jobs.  In Thursday’s Washington Post, Martin Feldstein, a former economic advisor to President Reagan, made the same point:

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/28/AR2009012802938.html?hpid=opinionsbox1

Here is how Feldstein put it:

“On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment. Computerizing the medical records of every American over the next five years is desirable, but it is not a cost-effective way to create jobs. Has anyone gone through the (long) list of proposed appropriations and asked how many jobs each would create per dollar of increased national debt?”

I have.  And the answer is: not many.  Or at least: not enough.

I’m all for investments in infrastructure that will create jobs.  But that’s not what this bill is.

This is not change we can believe in…this is Washington politics as usual.

-Randy Hill

This week the stimulus package moves closer to becoming law.  As previously stated on this blog, Congress should start over.  But the attitude of Congressional leaders seems to be: “Don’t bother me with the facts!”  I’m not sure they even know what’s in the bill.  Fortunately, some members of the media have looked inside it.  And what they saw wasn’t pretty:

http://online.wsj.com/article/SB123310466514522309.html

In business, I’ve learned the difference between spending and investment.  Spending you pay for; investment pays for itself.  But the package being considered in Congress is almost entirely spending.  Here’s how the Wall Street Journal described it:

“Some $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects. There’s another $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities.  Add the roughly $20 billion for business tax cuts, and by our estimate only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus.”

In short, this bill is too much spending and too little investment.

Can Congress come up with a better plan?

Yes they can.

-Randy Hill

The good news is that Nancy Pelosi and Congressional Democrats seem to be reconsidering their plans to fund contraception services in the stimulus package.  Apparently, they couldn’t quite make the case that this would create new jobs:

http://www.cbsnews.com/blogs/2009/01/27/politics/politicalhotsheet/entry4756202.shtml

However, the bad news is that there is still a lot of pork getting cooked in this stimulus package.  More than $800 billion in new spending.  And yet so much of it will be wasted on programs that won’t create jobs.  In this present economic crisis, the test should be: will it create new jobs? Take a look at the list below of pork items that are currently in the stimulus package.  And ask yourself if any of these will create new jobs:

• $6.7 billion to renovate and improve energy efficiency at federal buildings
• $2.5 billion to upgrade low-income housing
• $1.1 billion to Amtrax
• $1.8 billion to repair National Park Service facilities
• $800 million to clean up Superfund sites
• $600 million for General Services Administration to replace older vehicles with alternative fuel vehicles
• $426 million to construct facilities at the Centers for Disease Control and Prevention
• $400 million for NASA scientists to conduct climate change research
• $400 million to replace the Social Security Administration’s 30-year-old National Computer Center
• $360 million for new child care centers at military bases
• $276 million to update technology at the State Department
• $200 million to rehabilitate the National Mall
• $150 million for the Coast Guard to repair or remove bridges deemed a hazard to navigation
• $50 million for the Endowment for the Arts
• $44 million for repairs at the Agriculture Department headquarters in Washington

-Randy Hill

This week Congress will vote on a stimulus package that, as I have previously written, is more package than stimulus.

Worse, I fear that this short term plan could do long term damage to the economy. And I’m not alone in this. In a recent edition of Forbes, economist Bruce Bartlett warns:

“Thus the argument really boils down to a question of timing. In the short run, the case for stimulus is overwhelming. But in the longer run, we can’t enrich ourselves by borrowing and printing money. That just causes inflation.”

http://www.forbes.com/2009/01/22/stimulus-keynes-taxes-oped-cx_bb_0123bartlett.html <http://www.forbes.com/2009/01/22/stimulus-keynes-taxes-oped-cx_bb_0123bartlett.html>

By pouring nearly a trillion dollars into the economy, we are almost certainly risking a rise in inflation. Why worry about inflation? Because inflation taxes everyone. When the price of goods goes up, we all pay for it.

That’s just another reason for President Obama to think through the stimulus plan before signing it. We don’t need a cure that’s worse than the illness.

-Randy Hill

On Monday, I told you the good news about Obama’s stimulus plan: tax cuts.  Today I want to tell you about the bad news: spending.

http://www.realclearpolitics.com/articles/2009/01/fiscal_follies.html

According to reports, the President-elect wants to spend just under $1 trillion in his stimulus package.  To put that in perspective, that’s more than double the entire Defense budget.  Plus, the Congressional Budget Office is likely to soon announce that the current federal budget deficit is $950 billion.  So the President-elect wants to add another $1 trillion onto the $950 billion deficit we already have?

Who will pay for this?  You will and I will.  Eventually, Obama will have to raise taxes to pay for this.  But even worse, Obama seems to be forgetting the important link between interest rates and deficits.  The Federal Reserve Board, which sets interest rates, religiously watches the size of the budget deficit.  In the 1990s, when President Clinton worked with a Republican Congress to balance the budget, the Fed viewed that as a healthy sign for the economy and kept interest rates low.  Today, interest rates remain low, but only because the Fed is trying to breath life into the economy.  Once the economy turns around, the Fed might decide its time to raise interest rates, which will be another tax on you and me.

Obama is right to cut taxes.  And he’s right to spend some money.  But $1 trillion is too much.  We need a stimulus plan that not only spends dollars but makes sense.

-Randy Hill