Saturday, January 31, 2009

"Stimulus," libertarian-style

We're into our second year of "stimulus plans," and they all seem to feature the same logic: If the government spends more money (provided it spends that money "right"), the economy will improve. To quote Wayne Allyn Root, the Libertarian Party's 2008 vice-presidential nominee and one of my opponents for the party's 2012 presidential nomination:

Obama believes that the way to get out of an economic toxic disaster caused by too much government spending and debt, is to spend more and go further into debt. Interesting logic.

Of course, that logic doesn't just thrive on the Democratic side of the aisle. Last year's "stimulus" -- mailing out tax "rebates" financed not by cuts in government spending but by additional government debt -- went forward with considerable Republican support.

We've got to get past the notion that government is the engine driving the economy. It isn't now, and it never has been. FDR's New Deal -- which Obama's "public works" plan echoes -- probably added at least five years or more to the Great Depression. Hopefully we're not counting on another world war to pull our fat out of this fire.

Wayne Root and I agree on a lot of things, including the necessary foundation of a real "stimulus" program and a real economic recovery -- reducing the expense, not increasing the spending power, of government.

We agree on some of the details, too. For example, I wholeheartedly support Wayne's call for a 2009 income tax "holiday." As a matter of fact, I worked with 2008 pre-nomination presidential candidate Steve Kubby to craft and promote such a "holiday" last year.

On other details we disagree, and I want to explore that disagreement. But first, a disclaimer:

I don't oppose any of Root's suggestions for tax cuts. I've never met a tax cut I didn't like. When Root advocates cutting capital gains taxes, offering business tax credits for new hires, flattening taxes to lower rates, etc., I can only say "yeah! Cut, cut, cut!"

That said, if we are going to select only some tax cuts from the menu of all possible tax cuts (instead of just ending taxation, which I'd do if I could snap my fingers and make it so), I do disagree with Root's argument for cutting "from the top down." His tax cuts are concentrated on the "supply side," and his "flat tax" proposal is even specifically and intentionally "regressive" (your rate goes down as your income goes up).

I prefer a "bottom up" tax-cutting regimen which provides a tax cut for all Americans. If we stick to the current rate regime, that tax cut gets proportionally smaller as income increases, but everyone gets a cut. I support two mechanisms for achieving this cut:

- Adopting a regular annual increase to the personal exemption from the income tax. Every year, every American will be able to make more money before any of it is taxed, and some of the poorest Americans will fall off the tax rolls altogether.

- Applying that personal exemption to FICA -- Social Security and Medicare -- payroll taxes. Once again, every American will get that tax cut, although it will constitute a proportionally smaller percentage of their incomes as those incomes go up.

In support of this plan, I'm going to quote -- or at least paraphrase -- Wayne Allyn Root himself. In his book Millionaire Republican, Root (who, when he wrote it, was a Republican) characterized his party as follows:

The Republican Party isn't the party of the rich. It's the party of every American who wants to be rich.

That may be a paraphrase, because I can't find my copy of the book at the moment (I believe it's out on loan). But whether the quote is exact or not, I believe that it's an accurate statement of what Wayne was trying to convey. I also assume that the statement reflected one of the positive things he saw, or wanted to see, in the Republican Party at that time ... and that he considers it even more true of the Libertarian Party, which he joined not too long after writing it.

Cut taxes for the rich? Sure. No problem -- if we can cut all taxes. But if we can only cut some taxes, and that's probably the political reality, cut them for those who are trying to get rich, or at least richer. There are a lot more of them, and I love the word "more" -- the phrase "more votes for Libertarian candidates" has a very musical ring, doesn't it?

If we cut the capital gains tax, Bill Gates gets a tax cut, and Bob flipping burgers down at McDonald's doesn't. If we increase the personal exemption, Bill Gates gets a tax cut, and so does Bob. Thing is, for every Bill there are a hundred or a thousand Bobs. Bill's already rich. Bob's trying to get rich, or at least richer. If I could only cut taxes on one of them, it would be on Bob.

Call it "class warfare" if you like, and I won't argue with you. The fact is that more Americans consider themselves "middle class," or even "poor," than consider themselves "rich." When they hear (or think they hear) "tax cuts for the rich," that translates to them as "tax cuts for ... NOT ME." As we get about the business of leaving people's money in their own pockets, the more people we do that for the better. Especially when Election Day comes around.

"Supply siders" argue that tax cuts on what one might call the "entrepreneurial class" produce economic growth because the additional wealth remaining in that class's pockets gets invested in enterprises which create jobs.

That may be true as far as it goes, but I don't see that it's a one-sided truth. Money left in the pockets of the "non-entrepreneurial class" gets spent. It represents economic demand, and that demand is diffuse enough that it probably provides more accurate information to the "supply side" versus the guesses of a smaller number of entrepreneurs with a few more dollars in pocket to spend on testing those guesses.

Instead of hoping that those entrepreneurs guess correctly and create wealth which then "trickles down," why not let the market determine to whom wealth "trickles up?" And since we're going to run into "class warfare" considerations, why not be like God and come down on the side with the most battalions when we can do so consistently with our principles?

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