Oh, My God

That was House Minority Leader John Boehner's reaction yesterday after Democrats unveiled their $825 billion stimulus plan, which includes twice as much money for spending vs. tax cuts. He's not happy with the all the spending and told PBS NewsHour's Margaret Warner "that we need more in tax relief."

Oh, my God. Is that the only answer Republicans have for every problem? In this case, their answer is wrong according to Joseph Stiglitz (Nobel Prize in economics in 2001) who warns we should not squander America’s stimulus on tax cuts.

What is clear is that tax cuts will not help much. ...

Tax cuts have increased our national debt. They encouraged America to live beyond its means, increasing our liabilities without commensurate increases in assets. Further tax cuts would do the same. Good accounting looks at assets and liabilities. Spending on infrastructure, education and technology create assets; they increase future productivity.

Some of the spending in the stimulus serves multiple ends. Increased unemployment benefits have the largest multiplier effects – cash-strapped families spend every cent given – and meet vital social needs. It is imperative to provide health insurance to the unemployed: without that, a single serious incident can push a family into bankruptcy. Helping the unemployed meet house payments reduces foreclosures, addressing one of the underlying causes of the crisis. There are thus triple benefits.

We are in uncharted territory in this crisis. But household tax cuts, except for possibly the poorest, should have no place in the stimulus. Nor should business tax breaks, except when closely linked with additional investment. The one tax cut that should be included is a temporary incremental investment tax credit; it provides a big bang for the buck, encouraging companies to invest now when the economy needs the spending. Increased investments in infrastructure, education and technology, relief to states, and help to the unemployed need pride of place.

Stiglitz has some expert advice for state Republicans who also see cutting taxes as the only solution to budget problems.

Joseph Stiglitz of Columbia University, and Peter Orszag, until recently director of the Congressional Budget Office and now the nominee to direct the federal Office of Management and Budget — wrote during the last recession that spending cuts could actually be more harmful for a state’s economy during a recession than tax increases. ...

“The conclusion is that, if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.

And if Republicans think they're appealing to voters with their continual tax cut rhetoric, they're wrong again. By a nearly 2-to-1 ratio, people preferred government spending to create jobs over tax cuts to give Americans more money to spend.

Tax cuts for people who don't have jobs is not the answer. Most Americans understand that. Republicans don't.