With the unemployment rate stubbornly hovering near ten percent, despite hundreds of billions of dollars paid out in stimulus funding, President Barack Obama is considering a measure that will contain-more stimulus.
The Hill newspaper suggests that the new stimulus package will contain a permanent extension of the research and development tax credit, targeted tax cuts to business that would be designed to encourage hiring as well as a temporary payroll tax “holiday” to give lower paid workers tax relief and to encourage more hiring by businesses.
Of course the Obama administration is not exactly calling the proposed new measure “stimulus” as that word has developed a certain odor about it of ineffective and corrupt government spending that has succeeded in little more than stimulating the growth of government and the national debt.
Some are, putting it mildly, rather skeptical.
“If past experience tells us anything, the actual package, when announced will include some spending to placate unions and liberals who believe that the Obama stimulus was, in fact, too small. It will also likely include some “targeting” for that payroll tax holiday – both in employers who are covered (expect “small businesses” to fare better than big businesses) and in the time that it lasts (one month sounds about right).
“But this leak phase is the come-on to get members of Congress, especially Republicans and conservative Democrats in the showroom. The hope among Democrats, though, is that they can ultimately get Republicans to oppose the plan, Republicans are watching anxiously. Will it be good enough to back? If it isn’t, can they label it a stimulus? By rolling out the details slowly, the White House will hope to make Republicans look disingenuous if they ultimately decide to vote against the bill.”
Whether targeted small business tax cuts or a temporary reprieve in payroll taxes will cause more hiring is somewhat debatable. Businesses tend to plan for periods lasting a little more than a month or so and may be loath to hire people that they will just have to lay off just a few months later when the temporary stimulus effect wears off.
Republicans, in the meantime, are likely to offer their own version of stimulus, which will focus more on across the board and permanent tax relief. Making the Bush tax cuts permanent would be a start, particularly since it would give businesses a clear view of how the fiscal environment will shape up for the next several years. Lowering or even eliminating capital gains taxes is another idea being kicked around in Republican circles.
Real tax reform, which would consist likely of a flat tax (or at least flatter, with limited deductions, such as for home mortgage and charitable contributions) will likely have to await a President who would not be disposed to veto such legislation. But alleviating the huge cost of just complying with the tax code would certainly have incalculable effects on economic growth and job creation.
Sources: Jobless rate ticks up to 9.6 percent; Obama to offer new stimulus measures, Ian Swanson, The Hill, September 3rd, 2010
Stimulus? Who Said Anything About a Stimulus?, Chris Stirewalt, Fox News, September 3rd, 2010