Voice For Liberty

Tag: Stimulus bill

  • Corporate jet incentive, or tax dodge, or kids’ safety?

    Yesterday President Barack Obama denounced the tax breaks given to owners of corporate jets. Described by MSNBC Television program host Rachel Maddow as a “corporate tax loophole” that allows “giant corporations to dodge their taxes,” Obama cast the issue as corporate fats cat vs. kids: “You go talk to your constituents — the Republican constituents — and ask them, are they willing to compromise their kids’ safety so that some corporate jet owner continues to get a tax break?

    (Yes, I sometimes watch the leftist television news programs — so that you don’t have to.)

    Maddow, if you’ve ever watched her show, is given to snarky exaggeration as her style. The use of the term “dodge” is an example. Most people would think that “to dodge” means to avoid completely, and that’s what Maddow would like her viewers to believe: that these giant corporations are paying no taxes at all when they buy these planes.

    The reality, however, is different and much less sensational. Since the tax in question is an income tax, we must first calculate income. That means accounting for the expenses incurred in running the business. For assets with a long lifespan, depreciation is used, whereby a portion of an asset’s cost is deducted each year from income. With the U.S. corporate income marginal tax rate at 35 percent, being able to deduct one dollar in depreciation saves 35 cents in taxes.

    The issue in question, as identified by Lachlan Markay is an economic incentive implemented in the form of accelerated depreciation for purchasers of corporate jets. This provision allows companies to deduct depreciation costs from their income sooner, so they save on taxes now rather than later.

    Accelerated depreciation doesn’t increase the total amount of depreciation that can be deducted from income. Of course, taking a deduction this year rather than in a later year is valuable.

    So it’s not a “dodge,” as Maddow told her viewers. But it is a benefit to the companies that take advantage of it.

    The real question is whether these manipulations of the tax code are harmful or beneficial. Certainly Congress did not believe they were harmful when it passed the legislation that created this special accelerated depreciation, available for only a short time for purchasers of specific assets. It was designed to provide a stimulus to a specific industry. And if that term “stimulus” seems familiar, the legislation that created this accelerated depreciation incentive was part of H.R. 1: American Recovery and Reinvestment Act of 2009, also known as ARRA, also known as the stimulus bill, and one of the first legislative initiatives by President Obama.

    Now the president, evidently, feels this wasn’t such a good idea. Or he has decided that purportedly rich corporations are a convenient and politically expedient opponent. Attacking them fires up his base, as evidenced by Maddow’s over-playing of this matter.

    This is also an example of using the tax code in order to achieve an economic or social policy goal. In this case, one industry benefits, but others don’t. The remaining taxpayers have to make up the difference in lost tax revenue. Or, the country simply goes deeper in debt, and the cost is passed on to future generations.

    A further effect is that by making corporate jets cheaper (because of the accelerated depreciation), companies are induced to spend in this area when — absent the incentive — they might make alternative investments. So the question is: Are discounted corporate jets a wise investment for companies who otherwise might not buy them, at least not this year? Are Congress and the president smart enough to know that investment should be directed to this area? Todd Tiahrt, who represented Wichita at the time, thought so. That city, of course, is home to several companies that manufacture the types of airplanes targeted by Congress.

    But what benefits one city or one industry is not necessarily good for the rest of the country. A better course is to simply cut tax rates and let each company decide how to direct its capital investment.

  • Kansas and Wichita quick takes: Tuesday May 31, 2011

    Pachyderm to feature DA Foulston. This Friday (June 3) the Wichita Pachyderm Club features Nola Tedesco Foulston, District Attorney for the Eighteenth Judicial District of Kansas, whose boundaries are coincident with Sedgwick County. Foulston’s topic will be “An office overview and current events at the Eighteenth Judicial District of Kansas District Attorney’s office.” Foulston, a Democrat, was elected to her office in 1988 and has served continuously since then. … Appearances by speakers other than Republicans at Pachyderm often generate controversy, and this week is no exception. Pachyderm is a Republican club, and the mission statement of the national organization reads: “Promote active citizen involvement and education in government and politics through the formation and support of grassroots, Republican clubs across America.” Some feel that an appearance at Pachyderm will bolster Foulston’s re-election prospects, should she decide to run again next year. Others believe that no Democrat should be be a speaker — ever. In my opinion, the sentiment of the Pachyderm board and of many of the club’s regular attendees is that while Pachyderm is indeed Republican and conservative, the club’s mission of political education and civic engagement allows — in fact, encourages — appearances by prominent officeholders of any political party. In any county, the District Attorney is a powerful force in local government, with broad discretion as to the prosecution of criminal cases. This is a speaker that the members of Pachyderm should be encouraged to hear, even though members may not agree with her politics. …. Foulston will likely face several tough questions from the usually spirited Pachyderm audience. … Upcoming speakers: On June 10, John Allison, Superintendent of USD 259, the Wichita public school district, on “An update from USD 259.” On June 17, The Honorable Lawton R. Nuss, Kansas Supreme Court Chief Justice on “The State of the Kansas Courts.” On June 24, Jim Mason, Naturalist at the Great Plains Nature Center will have a presentation and book signing. Mason is author of Wichita’s Riverside Parks, published in April 2011. On July 1, Jay M. Price, Director of the Public History Program at Wichita State University, speaking on “Classes of Values in Kansas History.” On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.”

    Sedgwick County Commission. In its Wednesday meeting, the Sedgwick County Commission will consider making two forgivable loans for the purposes of economic development. These loans have become popular with economic development officials, and often the City of Wichita and Sedgwick County make loans of equal amount to the same company. … The program works by loaning the company an amount of money, with the entire amount paid out at once. Then, if performance goals are met over a period of time, the loan (and interest) is forgiven. Otherwise, portions of it, with interest, may become due. Often the term of the loan is four or five years, with a portion of the loan forgiven each year if goals are met. The performance goals are usually the number of full-time or equivalent employees. … The Golf Warehouse in northeast Wichita is asking for a $48,000 forgivable loan. It recently received a loan of that amount from the City of Wichita. Mid-Continent Instrument, Inc. is asking for $10,000. … Usually economic development incentives are accompanied by a cost-benefit study performed by Wichita State University Center for Economic Development and Business Research. The county hasn’t supplied such analysis for these two items.

    Kansas budget signed. On Saturday — a holiday weekend day — Kansas Governor Sam Brownback signed the budget bill. He used his line-item veto authority to strike an across-the-board reduction in spending, preferring to make targeted cuts instead. Although the governor had proposed ending funding for public broadcasting, the legislature included funding, and the governor did not veto it. … Most controversial of the governor’s handful of changes to the bill will be his veto of funding for the Kansas Arts Commission. This action was not a surprise, as recently the administration laid off all the commission’s employees. Associated Press reports that the chairman of the commission isn’t ruling out a lawsuit.

    KPERS suit threatened. Changes made by the Kansas Legislature to Kansas Public Employees Retirement System, or KPERS have caused state employee organizations to consider a lawsuit, according to Associated Press reporting. The changes made this year are mild compared to the changes that must be made if KPERS is ever to become self-sustaining. The threat of a lawsuit over these minor changes doesn’t foretell a future of cooperation from state employees in making the much larger reforms that must be made.

    Stimulus jobs — or not. Malcolm Harris calls attention to an analysis of the job-creation performance of the 2009 stimulus bill. The working paper is titled The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled. Its goal, according to authors Timothy Conley and Bill Dupor, is to “understand the causal effect on employment of the government spending component of the ARRA.” The key finding is this: “Our benchmark point estimates suggest that the ARRA created/saved approximately 450 thousand state and local government jobs and destroyed/forestalled roughly one million private sector jobs.” That’s a net loss of jobs. … The authors note there is “appreciable estimation uncertainty” in the estimates. Still, they are able to conclude: “However, our estimates are precise enough to state that we find no evidence of large positive private-sector job effects.” … The report includes a section summarizing other researchers’ findings, which usually find that the stimulus program created or save many jobs. The studies that find large job creation usually rely on “fiscal policy multipliers,” a Keynesian economics concept.

    Government doesn’t create jobs. Investor’s Business Daily relies partly on the Conley and Dupor paper in its editorial Government Doesn’t Create Jobs. IBD asks “In a joint op-ed with the British prime minister, President Obama admits that jobs are created by an innovative private sector. So why is he strangling ours with regulations, rules and taxes? We would hope it was a candid admission of the truth rather than just boilerplate rhetoric in an op-ed in the Times of London by President Obama and British Prime Minister David Cameron. But there it was: ‘Governments do not create jobs; bold people and innovative businesses do.’” Continuing: “For once, the president is spot on. Businesses create jobs to fill a need, and their incentive is profit. Businesses invest; governments can only spend. Businesses create wealth, as do their employees. Government consumes wealth and sucks the economic oxygen out of the room. Its employees create paperwork and regulations that restrict economic growth.”

  • Obama’s spending stimulus failed

    The school of thinking known as Keynesian economics holds that government should actively and aggressively manage the economy, most importantly by stepping up spending when demand is low. Through this deficit spending, it is said that government action can increase employment. This government spending purportedly accomplishes this through a multiplier effect, as dollars are spent again and again.

    The value of the spending multiplier — is it big or small? — is an important question. Also, the multiplier effect may be different for government spending versus private spending.

    Now, we’re starting to understand why Keynesian economics doesn’t work. Writing in the Wall Street Journal, Stanford economist Michael J. Boskin summarizes recent research that finds that the spending multiplier is small, and actually turns negative by the start of the second year. Furthermore, the government spending crowds out private sector spending. The effect of Obama’s 2009 stimulus bill is estimated at 0.2 percent of GDP, an amount described as “puny.”

    Tax cuts, however, are estimated to have a multiplier of 3.0, with “substantial tax cuts” having a multiplier of up to 5.0.

    In context, Obama’s economic advisers, at the time he took office, estimated that the spending multiplier for government purchases was 1.57, while the multiplier for tax cuts was 0.99.

    Of the new studies finding a small spending multiplier, Boskin writes: “These empirical studies leave many leading economists dubious about the ability of government spending to boost the economy in the short run. Worse, the large long-term costs of debt-financed spending are ignored in most studies of short-run fiscal stimulus and even more so in the political debate.”

    In conclusion, he writes: “The complexity of a dynamic market economy is not easily captured even by sophisticated modeling (an idea stressed by Friedrich Hayek and Robert Solow). But based on the best economic evidence, we should reject increased spending and increased taxes.” He calls for reductions in personal and corporate marginal tax rates and an “enforceable gradual phase-down of the spending explosion of recent years.”

    We should note that Obama and many of those in government are easily seduced by the allure of Keynesian deficit spending. It’s government, after all, that gets to spend the money. Republicans, even those who consider themselves conservative, have been seduced in this way, too.

    Tax cuts, on the other hand, leave money and spending decisions in the private sector.

    Why the Spending Stimulus Failed

    New economic research shows why lower tax rates do far more to spur growth.

    By Michael J. Boskin

    President Obama and congressional leaders meeting yesterday confronted calls for four key fiscal decisions: short-run fiscal stimulus, medium-term fiscal consolidation, and long-run tax and entitlement reform. Mr. Obama wants more spending, especially on infrastructure, and higher tax rates on income, capital gains and dividends (by allowing the lower Bush rates to expire). The intellectual and political left argues that the failed $814 billion stimulus in 2009 wasn’t big enough, and that spending control any time soon will derail the economy.

    But economic theory, history and statistical studies reveal that more taxes and spending are more likely to harm than help the economy. Those who demand spending control and oppose tax hikes hold the intellectual high ground.

    Continue reading at the Wall Street Journal (subscription not required)

  • Myth of Obama tax cuts

    As the nation’s attention is focused on whether Congress will extend the Bush tax cuts of 2001 and 2003, some are calling attention to the Obama tax cuts and calling for their extension.

    These tax “cuts” — and I use quotes deliberately — are part of the stimulus bill passed in February 2009. Polls show that very people know of these tax cuts.

    So what are the Obama tax cuts? There was one program that qualified — sort of — as a “cut,” and several tax credit programs. More information about these programs from the Obama Administration is at Recovery.gov,

    The largest item that benefited most people is the Making Work Pay Tax Credit, a two-year program that rebates $400 per year to individual taxpayers, or $800 per year for married couples. This is not a reduction in marginal tax rates, although the program will reduce the average tax rate that people pay. At its core, it is simply a reduction in the overall amount of tax someone must pay.

    This tax credit is not associated with any positive effort or activity by the recipients other than doing what they already do. The same criticism applies to the Bush tax rebate in 2008, too.

    Besides the Making Work Pay Tax Credit, the Obama tax cuts consist of other tax credits that apply not to everyone, but only to people who qualify.

    For example, a child care tax credit pays up to $1,200 per year in child care expenses. Obviously, the only people who can claim this credit are working people with children who chose to place them in daycare. Beyond that, it is not a “tax cut” by any stretch of the imagination. Properly, it is a spending program implemented through the tax system. Sometimes called tax expenditures, these measures often escape the usual scrutiny that spending receives. Since they’re billed as a “tax cut,” they sound like a good thing to most people, as few like paying taxes.

    If we need any more evidence that these programs are really spending disguised as tax cuts, consider the description of the child care tax credit as provided by the Internal Revenue Service: “It is a refundable credit, which means taxpayers may receive refunds even when they do not owe any tax.”

    That’s right. Even if you have no income tax liability, you can still get a tax credit — that is, a payment from the government.

    For tax cuts to be productive in growing the economy, they have to be associated with something positive, namely with work, saving, or investment. What many people positively respond to is a reduction in marginal tax rates, that is, the tax that must be paid on the next dollar earned.

    Programs that reduce the average tax rate like Obama’s Making Work Pay Tax Credit and the Bush tax rebates of 2008 aren’t effective because they don’t affect the marginal rate — the rate paid on the next dollar earned. This is not to say that I am not in favor of these programs. Anything that reduces the burden of taxes is welcome. But they are not the type of tax cuts that spur economic growth.

    Who responds most positively to reductions in marginal tax rates? As Jeffrey A. Miron explains, it is the most economically productive members of society:

    The Bush cuts provided lower taxes on ordinary income, especially for taxpayers at the high end of the income distribution. These are some of the most energetic and productive people in society; raising tax rates would discourage their effort and entrepreneurship. High-income taxpayers also have multiple ways of avoiding high tax rates, so any revenue gain from raising rates would be modest. The Bush cuts also lowered taxes on dividend and capital gains income; maintaining these lower rates is even more important for economic performance. Capital is mobile: when it is taxed heavily here, it flees somewhere else, meaning lower investment and employment in the United States. And because capital income taxes discourage investment or drive it overseas, they generate little if any tax revenue. (Jeffrey A. Miron, “Why the Bush Tax Cuts Worked”)

    It is these “energetic and productive” people that are responsible for a great deal of business activity and job creation. When these people take steps to avoid taxes it means less productive economic activity and more unproductive tax shelters.

    In Slaying Leviathan: The Moral Case for Tax Reform, author Leslie Carbone explains the harm of high marginal taxes, especially progressive taxes, where rates become higher as more income is earned:

    The discouragement of earning money by working, saving, or investing inherent in any income tax is exacerbated by progressivity. While any high tax rates are economically destructive, high marginal rates are even worse, because high marginal rates particularly discourage productivity and inhibit economic growth. … By lowering potential pay off, high investment taxes especially discourage risky investment. Discouragement of risky investment squelches technological advancement, because new technologies are the most risky. This means our progressive tax system actually reduces progress and inhibits improve quality of life.”

    If the goal of the Obama Administration is to create private sector economic growth instead of growth in government, it needs to keep the Bush tax cuts in place and avoid increases in marginal tax rates for everyone, especially the most productive members of society. A better strategy would be to reduce these tax rates farther to create even more economic growth.

    There is a lesson to be learned locally, too. Kansas needs to cut its marginal tax rates, both for personal income and for corporations. Miron spoke of capital leaving the United States because of high taxes. It’s even easier for capital — and its accompanying jobs — to move from one U.S. state to another. States with low tax burdens are experiencing growth in jobs and population, while high tax states have losses in both areas. Kansas is in the middle of the pack, but moving in the wrong direction.

    The current economic development strategy of Kansas and many of its cities and counties is to offer targeted incentives to attract new industry and keep current companies from leaving. A better strategy in the long run is to join the ranks of low tax burden states.

  • Kansas and Wichita quick takes: Wednesday November 17, 2010

    Kansas Senator Lee to tax court. State of the State KS reports that Kansas Senator Janis Lee has been appointed by Governor Mark Parkinson to the Kansas State Court of Tax Appeals. Lee is a Democrat from Kensington in northwest Kansas. This action opens another position in the senate — another three pending vacancies need to be filled due to senators who won election to other offices — and others are likely to follow as incoming governor Sam Brownback fills his cabinet. Lee scored 13 percent on the Kansas Economic Freedom Index for this year, which is a voting record more in favor of economic freedom than some other Senate Democrats — and some Republicans such as Senate President Steve Morris, for that matter. Lee’s replacement will be selected by the Democratic Party precinct committeemen and committeewomen in that senate district.

    Saving is good. A letter in today’s Wichita Eagle holds this observation: “Rich people don’t spend money in hard times. Give them a tax break, and they will stash it away. That’s why they are rich.” This letter contains a misconception that news media mistakenly repeats over and over: that consumer spending is good and saving is bad. What happens to savings — the “stash it away” the letter writer refers to? Few people stuff cash in the mattress or in a safe. Instead, they do several things with they money they decide not to spend on immediate consumption, which is the definition of savings. If put it in a bank, the bank lends it to others who will spend it. If used to pay down debt, that frees up funds for others to spend. If used to buy stocks and bonds, that provides funds for business to invest. Importantly, these funds usually go into increasing the nation’s stock of capital. This capital spending is especially desirable, as it supports current economic activity — that is, the people and companies that work today to produce capital goods — but it sets up the country to produce even more wealth in the future.

    Voters express pessimism. Consistent with other recent Rasmussen polls, voters are not optimistic that Congress will be able to accomplish very much in the next two years. See Voters Hold Little Hope for What New Congress Is Likely To Achieve.

    KDOT seeks public comment on public involvement policy. This seems almost like circular reasoning, but the Kansas Department of Transportation seeks public comment on a document titled “Sharing the Future — Public Involvement in the Kansas Transportation System.” The document — all 113 pages — may be found on this page. Comments should be directed to Kansas Department of Transportation, Bureau of Public Involvement, 700 S.W. Harrison, Topeka, 66603-3754, (785) 296-3526, fax (785) 368-6664, or maggiet@ksdot.org.

    Texas stimulus spending — not. Texas Watchdog takes a look at federal stimulus spending in Texas and finds some disturbing results. An example: “A closer look at spending by each agency shows wild differences in the amount of money spent and the number of jobs created. At least eight agencies have reported spending $500,000 or more for every job claimed. In the case of the Texas State Library and Archives Commission, its $883,993 per job is an estimate because more than a year after it was awarded nearly $8 million for a statewide library broadband upgrade project, nothing has been spent and none of its projected nine employees have been hired.”

    Who stole Election Day? A candidate for Maine governor wonders whether the rise of advance voting — “convenience voting,” he calls it — is good for the country. Besides meeting a voter who expressed regret in having already voted for his opponent, Eliot Cutler writes this of convenience voting: “At a time when sea changes are roiling our democracy, political parties are in decline, and public confidence in the political system is plummeting, convenience voting is having all the wrong effects. In Maine, at least, it appears to be discouraging voter engagement, providing life support to withering political parties, and undermining one of our most enduring and important institutions.” More in the Wall Street Journal at Who Stole Election Day? Too many voters are making decisions when horse-race coverage dominates the news, attention to issues is limited, and key debates haven’t taken place.

    Adapt, don’t overreact to climate change. Bjorn Lomborg — The Skeptical Environmentalist — of the Copenhagen Consensus Center argues in the pages of the Washington Post that mankind has shown that it can adapt to climate change. This record, he argues, means we should not panic about climate change. We can afford a long-term perspective: “… when it comes to dealing with the impact of climate change, we’ve compiled a pretty impressive track record. While this doesn’t mean we can afford to ignore climate change, it provides a powerful reason not to panic about it either.” He cites the example of the Netherlands: “Keeping Holland protected from any future sea-level rises for the next century will cost only about one-tenth of 1 percent of the country’s gross domestic product.” Concluding, he writes: “[adaption] will enable us to get by while we figure out the best way to address the root causes of man-made climate change. This may not seem like much, but at a time when fears of a supposedly imminent apocalypse threaten to swamp rational debate about climate policy, it’s worth noting that coping with climate change is something we know how to do. ”

  • Wasteful government spending must stop

    As part of its campaign against wasteful government spending, Americans for Prosperity Foundation has started a television advertising campaign and companion website to help Americans learn more about the harmful effects of the stimulus plan promoted by President Barack Obama, Speaker of the House Nancy Pelosi, and Senate Majority Leader Harry Reid.

    In just a handful of years, AFPF has grown to become “America’s leading conservative grassroots organization,” according to a recent article penned by Richard Viguerie. The recent attacks on AFPF by President Obama are evidence of this.

    According to AFPF President Tim Phillips, “This first ad called ‘Hollywood’ details how the failed $862 billion Obama/Pelosi/Reid ‘Stimulus’ bill was wasted on pet political projects, how it cost every American family an average of $10,000 and how it in reality killed genuine private sector jobs.”

    The companion website at SpendingCrisis.org has useful information that citizens can tap to learn more about the stimulus spending, as well as government spending in general. The site carries the headline “Washington, we’ve got a problem.”

    In particular, an issues page gives some reasons as to why high government spending is bad for America.

    As an example, under the heading “Government Spending is Inherently Wasteful,” we find “It’s regarded as a virtual truism that no one spends someone else’s money as well as they spend their own. The only people who seem to disagree are politicians.”

    Other facts highlighted include:

    • This year, the federal government will borrow about $12,500 per household to pay for its spending.
    • Despite claiming that the $862 billion stimulus package would keep unemployment below 8 percent, it is hovering around 9.5 percent with few signs of improving.
    • Public employees earned more than $120,000 per year in salary and benefits on average, compared to about $60,000 in the private sector.
    • From anti-poverty spending programs to defense and education, the federal government now spends a record $30,543 per household.

  • Stimulus Pushers

    If we needed more evidence of President Barack Obama‘s inclination to shower public treasure on public sector unions, here it is. The Wall Street Journal details some of the ways that last week’s mini-stimulus bill is a gift to public sector unions at the cost of everyone else.

    For example, the portion of the spending dedicated to public schools comes with the requirement that the funds be used to increase school spending. The funds can’t be used by states to replace their own spending.

    The claim that teacher jobs will be lost is false, too. The editorial notes the rapid growth of teacher employment, far more than the growth in student enrollment: “While Mr. Obama quotes the union figure of 160,000 potential lost teacher jobs, those don’t have to come out of the classroom. According to research by Eric Hanushek of Stanford University, student enrollment grew by 22% from 1990 to 2007, but teacher employment grew by 41%. Since 2000, enrollment has grown by 5% but teacher employment by 10%.”

    The editorial also notes that teacher layoffs in Milwaukee could have been avoided if teachers had accepted a less expensive health care plan. The district proposed cutting per-teacher health plan costs from $23,000 per year (!) to $17,000. What happened? “The unions chose the layoffs, betting (correctly) that Democrats in Washington would come to their rescue.”

    Finally, the article estimates that teachers unions and other unions will receive an estimated $100 million in additional union dues because of this bill, and much of that will be used for political purposes.

    Any guesses as to what type of candidates this money will be used to support?

    Stimulus Pushers

    The latest bailout for public unions and spendthrift states.

    To treat Washington’s spending addiction, the November elections are the taxpayer’s best chance to stage an intervention. But until then, President Obama and the Democratic Congress are determined to keep pushing strung-out state governments to take one more fix.

    Witness yesterday’s 247-161 largely party-line House vote to approve a Senate bill shovelling another $26.1 billion out to state education and Medicaid programs. The White House has promoted the bill as emergency assistance for strained state budgets. But this unique brand of therapy drives states to spend more, not less. The “assistance” is so expensive that several governors were begging for relief even before Mr. Obama signed it into law.

    Continue reading at the Wall Street Journal

  • The stimulus evidence one year on

    Last week the Wall Street Journal reported a piece that analyzes whether the Obama stimulus plan, after one year’s time, can be judged a success. (See The Stimulus Evidence One Year On)

    Robert J. Barro, who is professor of economics at Harvard University and a senior fellow at Stanford University’s Hoover Institution, writes that the stimulus may be a good deal in the short run — if the government spends on things that are truly worthwhile. As we’ve seen, that is not always the case.

    But Barro says, correctly, that this spending, paid for with borrowed money as it is, generates debt that must be repaid at some time. This is something that government spending advocates seem to conveniently forget.

    Barro comes to this conclusion:

    We can now put the elements together to form a “five-year plan” from 2009 to 2013. The path of incremental government outlays over the five years in billions of dollars is +300, +300, 0, 0, 0, which adds up to +600. The path for GDP is +120, +180, +60, minus 330, minus 330, adding up to minus 300. GDP falls overall because the famous “balanced-budget multiplier” — the response of GDP when government spending and taxes rise together — is negative. This result accords with the familiar pattern whereby countries with larger public sectors tend to grow slower over the long term.

    The projected effect on other parts of GDP (consumer expenditure, private investment, net exports) is minus 180, minus 120, +60, minus 330, minus 330, which adds up to minus 900. Thus, viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

    The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake.

  • Articles of interest

    Education, health care, Kansas school funding, unintended consequences.

    Charter schools: Two studies, two conclusions

    This Washington Post article looks at two recent studies of charter schools to try and determine whether they perform better or worse than regular public schools. Kansas, in effect, has no charter schools. They’re allowed by state law, but local boards of education must approve them. Few are approved, as the education establishment, including the teachers union, is firmly opposed to charter schools. Most charter schools operate on a much lower budget than regular public schools. As Kansas tries to work its way out of a tight budget, charter schools could provide a way to create diverse educational opportunities at lower cost.

    Health Care is Not a Right

    (Competitive Enterprise Institute) A discussion of why there is no right to health care, at least not in a country that understands the true meanings of rights. “Whereas genuine rights protect citizens from state coercion, the ‘right to health care’ serves to justify state coercion against a particular part of the population: those who pay taxes. Moreover, by their very nature, such positive demands cannot be clearly defined and hence are capable of infinite expansions. As one need is satisfied, others arise.”

    School Districts: Extra Funds Cannot Replace Legislative Budget Cuts

    A story from KAKE Television about Kansas State Board of Education member Walt Chappell and the huge fund balances that Kansas schools are holding. Chappell says that some of the money in these funds could provide a way to get through a year of reduced funding from the state. The Kansas Association of School Boards, a group that advocates for more school spending and tax increases to support it, disagrees.

    Bush Was a Big-Government Disaster

    A Reason Magazine editorial took a look backwards at the George W. Bush presidency: “Bush’s legacy is thus a bizarro version of Ronald Reagan’s. Reagan entered office declaring that government was not the solution to our problems, it was the problem. Ironically, he demonstrated that government could do some important things right—he helped tame inflation and masterfully drew the Cold War to a nonviolent triumph for the Free World. By contrast, Bush has massively expanded the government along with the sense that government is incompetent.”

    The Henry Ford of Heart Surgery

    The Wall Street Journal article The Henry Ford of Heart Surgery: In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits reports on a new model for reducing health care costs: economies of scale. “By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion. His model offers insights for countries worldwide that are struggling with soaring medical costs, including the U.S. as it debates major health-care overhaul.”

    Cash for Clubbers

    An example of unintended consequences at work: The Wall Street Journal found that the cash for clunkers program worked for something else, too: “We thought cash for clunkers was the ultimate waste of taxpayer money, but as usual we were too optimistic. Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama’s stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart. … This golf-cart fiasco perfectly illustrates tax policy in the age of Obama, when politicians dole out credits and loopholes for everything from plug-in cars to fuel efficient appliances, home insulation and vitamins. Democrats then insist that to pay for these absurdities they have no choice but to raise tax rates on other things — like work and investment — that aren’t politically in vogue. If this keeps up, it’ll soon make more sense to retire and play golf than work for living.”