ONCE MORE INTO THE BREECH WITH AN INADEQUATE PLAN

President Bush appears to be unable to learn from the past and incapable of acting outside of his preconceived notions despite proof that he is wrong. His plan to fight recession meets the definition of insanity: “…The belief that performing the same act repeatedly will result in different outcomes.”

1. A major component of the president’s plan calls for incentives for business to invest. The problem with this is that business will only invest when there is a good business reason to do so e.g. there is a demand for the business’s product. In April of 2004 CFO.Com, hardly a liberal publication, printed an article which established that “Tax Breaks Don’t Boost Investment”. The research looked at 275 companies that had been given tax incentives to invest. The 25 companies with the largest tax breaks reduced their investment by an average of 22%. The other companies studied reduced their investment by an average of 13%. Given this data it is hard to see how the President’s plan will help boost the economy. It will only increase corporate after tax profits. In other words: rob the treasury to help the rich.

2. The second component of the President’s plan calls for a one shot tax rebate that he hopes people will put into the spending stream. However, given the record high levels of consumer debt combined with the record low savings rate and the loss of defined benefit pension plans this result is unlikely. People will probably use the rebate to lower their debt levels or add to the savings. Again, the benefit to the economy may be negligible to non-existent.

3. The best way to stimulate the economy would require putting money into the hands of those who will spend it. People spend when they internalize the fact that the money is really there. This means permanent tax cuts for the poor and middle class. The tax cuts can be offset by raising taxes on those who do not spend the bulk of their marginal income. The President, however, has proposed that expiring tax cuts to the very people who don’t spend should be made permanent. Again, he demonstrates his determination to implement plans based upon belief as opposed to fact. He reminds me of the legislature that decided because gravity was a law it could be repealed. Neither they nor he make any sense.