Democrat Stimulus Plan Goes Back to the 70′s

Nothing gives me heartburn like reading a headline like Jimmy Carter’s Tax Credit. That is, until I read what’s in the article. Someone get me a TUMS®.

Stimulus Plan A didn’t work to create jobs or reduce unemployment. That was the $165 billion of tax rebates and money for states in February 2008.

Plan B flopped too. That was last February’s stimulus that has devoted $862 billion into mostly government programs. The unemployment rate climbed steadily until last month, and the main lasting impact has been nearly $1 trillion added to the national debt.

Now comes Plan C, another February stimulus, though this time everyone has been instructed not to use the “s word,” lest it scare the voters. This one is a “jobs bill,” as if Plans A and B were about something else. Don’t expect this one to work any better than the last two.

If it’s any consolation, this one’s a bargain, coming in at only $85 billion. If only the Chi-Coms would be a little more accommodating the Democrats could be blowing another $800 billion.

In all seriousness, this is insane, and it isn’t going to work. They want to dole out more unemployment and Medicaid funds for the states. Because you know, the unemployed are known for creating jobs. Oh, sorry, I was supposed to be serious.

But we’ve also seen this economic movie before—in 1977 under Jimmy Carter. During the two years it was in effect, a jobs credit worth about $7,000 in today’s dollars became a $20 billion free lunch as businesses claimed the handout for one of every three new employees.

In the short term, the Jimmy Carter jobs credit appeared to reduce unemployment. The jobless rate dropped by 1.2 percentage points (to 5.8% in 1979 from 7% in 1977). But that effect was short-lived, and when the subsidies ended two years later the layoffs resumed and the unemployment rate rose again and by 1980 was back to 7.2%.

Citing this not-so-happy experience, Wisconsin Democrat Ron Kind says the tax credit is evidence that Congress doesn’t “do anything new around here except the history we repeat.” The left-leaning Tax Policy Center recently looked at a proposal for a $5,000 payroll tax credit, which is similar in concept to the Senate jobs credit, and concluded that “The problem with subsidies such as this is that they are exceedingly sloppy. A lot of money goes to those firms that would have hired anyway.”

Hopefully the Republicans won’t fall for it. Tax credits are not tax cuts.

The President is trying to lure Republicans to support this policy as a “business tax cut.” But they should know that it violates sound tax principles. Pro-growth tax cuts, as adopted so successfully by JFK in the 1960s and Ronald Reagan in the 1980s, are broad-based and lower tax rates for as many people as possible. This reduces the distortions of the tax system, while permanently adding to the rewards for investment and risk-taking.

That’s the opposite of Mr. Obama’s tax strategy, which is to dole out special tax credits and loopholes for favored behavior or industries—hybrid cars, buying a new house, wind power—and then paying for these by raising tax rates on anyone making more than $200,000 starting next year. The result will be higher tax rates paid on a shrinking tax base, with a misallocation of capital toward projects chosen by politics rather than by prices or potential return on investment. ….

The progressives in government don’t want to hear any of this. They’ve railed against “tax cuts for the rich” for the last decade. They certainly aren’t going to turn around and “take food out of the mouths of starving children.” That’s their idea of a tax cut. It never occurred to them that allowing people to keep what they’ve earned, and invest it as they see fit, is not taking money from someone else. They’re thinking is so twisted it’s hard to fathom.

In short, get used to high unemployment. There’s no indication the situation’s going to change any time in the near future.