By l.t. Dravis

 

WASHINGTON, D.C. – Friday, January 30, 2009 – Another year, another bailout.

So what’s this one all about?

Washington politicos are now telling us that we should allow them to indebt our children, grandchildren and great-grandchildren for an additional $819 billion to ‘stimulate’ the economy.

But wait a second; what are we really trying to do here?

Are we trying to stimulate the economy or are we trying to save it?

Given George W. Bush’s legacy of incompetency, it’s difficult to argue against doing something.

But, to borrow from President Obama’s own words, is the 2009 bailout package ‘audacious’ enough to stimulate, much less save the economy?

            I don’t think so . . . and here’s why:

 

BUSINESS TAX BREAKS . . . Adds up to $?? billion or $??? million (no one knows exactly). Allows businesses to claim tax credits on profits over the past five years as opposed to two years under current law. Also allows businesses to take ‘bonus depreciation’ for investments in equipment and facilities while doubling write-offs for capital investments and new equipment purchases. Also gives tax credits for hiring young people and veterans.

            WHY THIS WON’T WORK . . . Tax credits and write-offs don’t generate cash unless and until a business makes a profit, files a tax return, and receives a refund check. Besides potential negative cash flow problems for the treasury, accelerated depreciation puts only $.27 back into Gross Domestic Product (GDP) for each $1.00 the government gives. Corporate tax reductions put only $.30 back into GDP for every $1.00 the treasury gives away.

            WHAT WILL WORK . . . Businesses need cash and they need it now and that means they need orders for products and services. The administration should talk to businesses and governmental agencies in cities, counties, and states to determine which high-demand products and services can and should be produced and delivered in the shortest periods of time. The government could then provide performance-based low-interest loans and/or cash grants disbursed monthly to businesses that create new jobs and/or retain existing jobs.

 

CHILD TAX CREDIT . . . Increases the number of people who can claim a child tax credit (currently $1,000 for each ‘qualifying’ child under 17) this year and next . . . costs $1.05 billion a year for ten years.

            WHY THIS WON’T WORK . . . Consumers, like businesses, need cash. Tax credits don’t become cash until tax returns have been filed and refund checks received. These tax credits do not create jobs and therefore do not create additional federal and state income tax revenues.

            WHAT WILL WORK . . . $1.05 billion a year could create 21,000 new jobs paying $50,000.00 a year, generating $262,500.00 in gross federal income tax revenue at the current 25% tax rate.

 

EDUCATION . . . Provides $29 billion for ‘education programs’, $4.6 billion for job training, $18 billion for Pell grants for college students, and $3 billion for ‘scientific research’.

            WHY THIS WON’T WORK . . . This part of the stimulus falls significantly short of the need. The National Education Association estimates that it will cost $322 billion to bring our nation’s schools up to code to enable our children to learn in relative safety and comfort.

            WHAT WILL WORK . . . Let’s get audacious on education! Let’s put enough borrowed money ($322 billion) into our borrowed future by awarding best-bid construction contracts to rebuild and refurbish school buildings, ancillary facilities, and grounds. Let’s also contract with publishing companies to produce updated textbooks and negotiate working partnerships between computer manufacturers and software providers to develop ‘virtual studio classrooms’ to engage students in interactive learning.

 

ENERGY . . .

Puts $54 billion into ‘renewable’ energy ($41 billion for energy-efficiency projects and grants, $11 billion into a ‘smart’ electric grid and $8 billion into loan guarantees).

            WHY THIS WON’T WORK . . . $54 billion will not significantly reduce our dependence on foreign oil and will not create enough jobs to generate a return on taxpayers’ investment.

            WHAT WILL WORK . . . Private capital typically follows government capital into viable economic development packages at the rate of 4 to 1. If, for example, we invested $500 billion in wind farms, viable electric cars, geothermal and solar systems, and other green technologies, private investments could total as much as $2 trillion and could create as many as a million new jobs.

 

HEALTH CARE . . . Spends $40 billion for Medicaid coverage and to subsidize health care insurance for low-income workers and unemployed people. States would receive $87 billion to subsidize Medicaid costs. Also includes $20 billion dollars to computerize medical records over the next five years. Spends another $6.5 billion on preventive health care and to support community health centers and fight avian flu, AIDS, STDs, and tuberculosis.

WHY THIS WON’T WORK . . . It is commendable for the federal government to subsidize Medicaid and health care insurance for low-income workers and unemployed Americans, but money spent here will not create new jobs and will not generate a return to taxpayers.

            WHAT WILL WORK . . . Health care for all Americans should not be conflated with an economic stimulus package. The stimulus package should be focused on saving existing jobs, creating new jobs, and reviving businesses that might otherwise fail. This $153.5 billion could be better spent on ‘shovel-ready’ infrastructure projects. Suggestion: As part of the Obama health care initiative, companies like Assurant Health Care, Blue Cross, Health Pass, Kaiser Permanente, and United Healthcare could receive deferred tax credits to provide no-cost and low-cost short-term health care policies for low-income workers and unemployed Americans.

 

INFRASTRUCTURE . . . $142 billion would be spent on a wide range of infrastructure projects, including building and renovating highways and public buildings. Includes $10.4 billion for bus, high-speed rail, subways, and trains.

            WHY THIS WON’T WORK . . . This package provides only 6.5% of the total amount necessary to rebuild our infrastructure. The American Society of Civil Engineers (ASCE) reports it will cost $2.2 trillion in 2009 to rebuild our infrastructure, an increase of $600 billion over its 2005 estimate. Our crumbling infrastructure will not support (no pun intended) a healthy economy and threatens to derail the whole point of this stimulus package. Many infrastructure projects could take as long as 1½ years get started; more than half the money allocated to repair the infrastructure won’t be released until after 2010; and nearly two-thirds of the $60 billion allocated for highway construction and to repair federal buildings may not be released until 2012. These delays will severely curtail new job creation during a critical time when millions of unemployed Americans desperately need to return to work.

            WHAT WILL WORK . . . It is time to finally confront the problem for what it is . . . $2.2 trillion should immediately be invested in expanding, rebuilding, and refurbishing our infrastructure. An aggressive, fast-track, infrastructure rebuilding program would create thousands upon thousands of jobs in a variety of occupations and would return billions of dollars in income taxes to the federal government and to states.

 

LAW ENFORCEMENT . . . The stimulus package provides $4 billion for police departments to offset anticipated declines in state, county, and city funding to keep police officers on the job.

            WHY THIS WON’T WORK . . . $4 billion allocated to police departments without any conditions will not do anything to create new jobs or to stimulate business activity.

WHAT WILL WORK . . . Funding for law enforcement should be part of a separate anti-crime bill designed to comprehensively improve overall efficiencies in the criminal justice system. The $4 billion allocated here should be used to hire people to work on infrastructure projects.

 

SCIENCE AND TECHNOLOGY . . . Nearly $6 billion for research and development would be handed out to NASA, the National Science Foundation, and to expand broadband service in rural areas.

            WHY THIS WON’T WORK . . . $6 billion would have a minimal impact in the short-term to create new jobs or stimulate business activity.

            WHAT WILL WORK . . . Research and development projects should create real jobs for real people across a variety of industries. The Federal Government could, for example, send requests for proposal to Chrysler, Ford, and General Motors to develop heavy-duty natural gas engines to replace diesel engines in tractors and trucks or to design and produce new forms of light-rail systems or to design and build Mag-Lev trains for long-distance routes. The Federal Government could also contract with non-profit medical research facilities like the Duke University School of Medicine, the Howard Hughes Medical Institute, the James Wilmot Cancer Center at the University of Rochester, and other similar facilities to develop affordable medicines, medical procedures, and new technologies to improve the lives of all Americans.

 

TAX RELIEF . . . $212 billion gives individuals a $500.00 reduction in payroll tax deductions, a refundable $1,000.00 per child tax credit, expands the Earned Income Tax Credit, and provides a partially refundable $2500.00 four-year college tuition credit.

            WHY THIS WON’T WORK . . . 43% of federal government revenues comes from personal income taxes. 40% of revenues for the treasury come from payroll taxes. Tax reductions interrupt cash flow to the federal government and increase the federal deficit. The government then has to borrow more money which increases interest payments on the national debt and creates the need for future tax increases. Additionally, when the government competes against private enterprise for capital, private enterprise pays more which means consumers pay more. Tax credits to individuals will not create new jobs and will not have any measureable impact on the economy until people receive tax refund checks.

            WHAT WILL WORK . . . Tax cuts may sound good to politicians on Election Day, but they don’t help the economy as much as increased spending on infrastructure projects. According to Mark Zandi, Chief Economist for Moody’s, each $1.00 in individual tax cuts adds only $1.03 to the Gross Domestic Product (GDP) while each $1.00 in increased spending on infrastructure adds $1.59 to GDP.

 

UNEMPLOYMENT BENEFITS . . . $60 billion would be spent to increase unemployment benefits by $25 a week and extend benefits for eleven months. Included are funds for job training and an increase in food stamp benefits, plus $7.5 billion in SSI payments to poor families with children.

            WHY THIS WON’T WORK . . . According to the Heritage Foundation, an extension of unemployment benefits actually increases the number of people who remain unemployed. The Heritage Foundation also found that a 13-week extension of unemployment benefits adds only $.25 to the economy for each $1.00 spent.

            WHAT WILL WORK . . . $60 billion would be better spent to assign unemployed workers to full-time community service jobs, job training classes, and to positions with organizations like SCORE and the SBA to gain experience helping new entrepreneurs establish and manage small businesses.

 

ACCOUNTABILITY . . . We know that banks, financial services companies, and Wall Street misappropriated hundreds of billions of taxpayer dollars originally intended to be loaned to businesses and individuals to stimulate the economy.

One wonders why our ‘leaders’ in Washington failed to anticipate that the same people whose incompetence and greed precipitated the economic meltdown would misuse and steal billions of ‘free’ dollars and institute standards of accountability to protect taxpayers?

After having learned the ‘missing bailout money’ lesson at our expense, Congress seems to have gotten smarter and incorporated the following accountability provisions in the 2009 bailout package:

 

·         A Recovery Act Accountability and Transparency Board will review how taxpayer funds are being spent and will intercept problems before they become disasters. This seven-member board will include inspectors general and deputy Cabinet secretaries.

·         City, county, and state officials will be required to certify justification for public funding of each investment and will certify that each investment has been fully vetted and will post those certifications on the Recovery Act website.

·         Contract announcements, grant competitions, contract awards and grant allocations will be posted on the Recovery Act web site.

·         Earmarks will not be allowed to be added to the stimulus package.

·         Funds will be distributed only through programs with a history for fiscal responsibility.

·         GAO inspectors general will be allowed full access and will be equipped with resources necessary to review all forms of funding.

·         Names, phone numbers, and addresses of program and project managers will be posted on the Recovery Act web site.

·         Project descriptions, including purpose, total cost, timeline, and justification for funding will be posted on the Recovery Act web site.

·         Whistleblowers who report abuse and fraud will be protected from any and all forms of retribution.

 

EPILOGUE . . . This is new ground for the United States of America. For two hundred plus years we’ve been a democratic nation with a capitalist financial system considered by the world to be the strongest in the history of mankind. Capitalism survived the Revolutionary War, the settling of the west, the Civil war, World War I, a twelve-year long depression, World War II, the Korean War, the Cold War, a century or more of racial injustice, the assassinations of President Kennedy, Dr. Martin Luther King, and Senator Kennedy, the Vietnam War, Watergate, the fall of the Soviet Union, famine and natural disasters around the world, but was very nearly destroyed by eight years of the incompetency and moral bankruptcy of George W. Bush, Dick Cheney, and a do-nothing Congress.

Politics aside, only the federal government has enough borrowing power (or the ability to print money at will) to even come close to managing this mess, so we have no choice but to turn to the world’s largest and, some would say, most incompetent institution, to save us from ourselves.

Save us from ourselves?

Yup.

We stood by and did nothing while Bush, Cheney, the Bush cabinet and the House of Representatives and the Senate stumbled around for eight long years, squandering the nation’s financial, political, and military resources.

We were evidently too busy watching American Idol and Dancing with the Stars to watch our elected and appointed representatives.

And, some would say, we’ve gotten what we deserve.

But with President Obama in office, we have a chance to turn things around.

Our new President is intelligent and thoughtful and he believes in democracy as envisioned by the framers of our constitution, he believes in transparency, and, most important, he believes in listening to us.

So we have the power to make certain this bailout package not only ‘stimulates’ the economy, but actually saves it.

Who could ask for anything more?

 

Copyright © 2008 by LTD Associates West, Ltd. All rights reserved.

 

If you have questions, comments, or concerns, Email me at ltdassociates@msn.com (goes right to my desk) and since I personally answer every Email, I look forward to hearing from you soon.