IN AN APPARENT effort to show terrorists that American life would resume its normalcy, partisanship recently has re-emerged in Washington, D.C. After passing a bipartisan anti-terrorism bill in Kumbaya fashion, the Republican-led Congress passed a $100 billion economic stimulus package by two votes. While neither party disagreed over the projected amount of the stimulus package, both disagreed over the proper use of governmental funds.
Obviously, given the declining state of the stock market, unemployment and every other conceivable indicator, the economy is in desperate need of encouragement. Unfortunately, neither party has taken the optimal approach to jump-starting our country's financial base: an across-the-board income tax cut.
Despite the partisan rhetoric advanced by both sides, both economic stimulus plans placed a great deal of emphasis on tax rebates, tax cuts and other phrases starting with the word "tax." The differences laid in where the plans allocated the majority of their benefits. The Republican plan places a great deal of emphasis on supporting corporations and small businesses. In contrast, the Democratic plan allocates almost all of its benefits to those recently laid off or otherwise displaced in the recent downturn. Thus, an observer sees an obvious and clean contrast between helping companies - the entities that generally produce jobs - and helping the people who would like to fill those jobs.
From a purely abstract, philosophical standpoint, the Republican proposal holds a bit more appeal. Because of the structure of tax brackets, the poorest Americans pay no federal income tax ("Truth In Taxes," Brookings Institution, Spring 2000). Thus, a tax rebate or tax cut would offer little real help to those recently returned to the workplace. If money did make its way to these disadvantaged individuals, it would have to do so via traditional government-style welfare benefits.
Given the questionable budgetary exploits of Social Security, Medicaid and Medicare programs and given the failures of the War on Poverty programs of the 1960s - poverty does still exist, after all - another way should be preferred over simply engaging in a direct wealth transfer. At some point, the programs would have to end - something not likely to happen - or the programs would have to be paid by increasing taxes somewhere else. Committing to a series of programs that probably would necessitate taxing other citizens' disposable income is ill-advised in a time of recession.
In supporting corporations, the Republican plan would, theoretically, spread potential economic benefits across a wider group of individuals. To state the obvious, small businesses and corporations employ a large percentage of the American workforce. By putting more cash in the hands of these businesses, more people should be able to keep their jobs, those persons' salaries would enter the economy, other businesses would be supported, and an economic version of Elton John's "Circle of Life" would begin.
This is the ideal theory, in any event. In practice, most major corporations are facing substantial debts resulting from these recent economic shortfalls. Thus, any ready infusion of cash would first go to shoring up that business's balance sheet. Retaining employees likely would be a secondary concern. Consequently, if the goal is to facilitate investment in the economy to support job creation, this approach probably is not the most effective means.
This leaves the approach neither plan seems to address: an across-the-board tax cut. Arrange the cut so that it provides immediate cash to as many taxpayers as possible. Such a tact undoubtedly would benefit the rich disproportionately, but this makes marginal sense, given the fact that the rich pay an obscenely disproportionate share of the current federal budget. Once all taxpayers have extra disposable income, they will spend the money in some respect, probably investing it in the economy more directly than businesses currently would. Even those oft-hated rich likely would invest, taking advantage of the cheaper goods that normally accompany a depressed market.
Thus, neither stimulus plan really gets at what the economy desperately needs: more disposable income in the hands of more would-be consumers. Only a direct, even-handed tax cut would both put a large amount of cash into the economy and give investment opportunities to every taxpayer. While this modest proposal would not solve all of America's economic woes, it would at least provide a modest push in the right direction.
(Seth Wood's column appears Wednesdays in The Cavalier Daily. He can be reached at swood@cavalierdaily.com.)
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