Stimulus Nattering

I know the stimulus bill argument is over and done and Obama is signing it in Colorado today, but I was struck by a question that I really had no answer to and it was — how are tax cuts stimulative right now at all?  This makes no sense to me but I am looking at recovery.org and it lists $228B in tax cuts.

* How does patching the AMT hole keep people from paying AMT when they aren’t rolling over their stock options and taking out enough in profit to pay AMT?  I asked H&R Block about AMT, since I am starting to get concerned about paying it, and they gave me a handy little ‘your introduction to AMT’ thing which basically said if you cash out your stock options, it will bite you.  But if everyone is taking a 40% bath on their stock options, is anyone cashing them out and thus avoiding AMT?

* How does fixing the rate of capital gains taxes at 15% help… anyone?  If no one is making money from capital gains because all their stocks and funds took a huge bath, how does that get money into the economy?

* If small businesses are falling over one after another after another, and the banks won’t lend to start new ones or keep revolving credit for existing ones, how does giving tax cuts to small businesses help any small businesses?  How does some $100 a week or even a $1000 a week help if what the business needs is $50K in revolving credit?

* How does a tax cut to me — which I will not see because I make too much money — giving essentially me $30 a paycheck — do anything?

These are real questions.  I am not trying to be facetious.  I just don’t understand how tax cuts on $0 moves money around the economy.  The problems are so much fundamental that sloshing pennies around just doesn’t do anything.

I am generally in favor of direct Keynesian stimulus because hey, a job at least gets a paycheck into someone’s pocket, even if it is short-lived, and at the end of the day someone gets a road or a train out of it.  But realistically, I don’t think it will work, either, not without coupled with some seismic shift in understanding:

– How the credit crisis works
– How we got into this mess
– What it means when there is oversupply
– Why retail is massively overbuilt
– etc.

The system has shown cracks that painting over and patching with some spackle is not going to help.  In the last 10 years everything in the world changed and we were busy having two wars and spending ourselves into the grave.

The days when someone can graduate from high school, get a factory job, go buy a house and be content until retirement are very much over.  But how do you tell that to the 45 year old autoworker at GM?  What do you do?

  • Personally, I'm beginning to suspect that the contents of the stimulus package matter less to Obama than the package itself. Ideally, the stimulus package will encourage private capital back into the market. However, failing that, he now has one HUGE bill under his belt in his favor. That will come in handy as he begins to re-shape everything from health care to how business does businesses. It's what he promised, and what the country needs–even though no one wants the pain of making those changes.

    Don't be surprised if you see a complete overhaul of the tax code in the next two years.