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The Stimulus Bill – it’s about government growth, stupid!

February 16, 2009

“It’s the economy, stupid” was a popular phrase during President Bill Clinton’s first run for the White House when he challenged President George H. W. Bush in 1992. Fast forward to 2009 and Congress has passed a $787 billion “stimulus” package that is supposed to create jobs and invest in America’s future.

Government has this nasty habit of passing “temporary” legislation. In Canada our 1917 Income War Tax Act is a classic example. This was a temporary national general tax on personal and corporate income (the first in Canada) meant to help fund Canada’s costs associated with World War I. Last time I checked this temporary tax is still imposed – every two weeks for most people.

Last week the US Congress passed a 1,073 page “bi-partisan” (243 House Democrats, 57 Senate Democrats and 3 Senate Republicans) stimulus bill as a one-time jolt to the US economy. If we are to believe one of President Obama’s chief advisors, David Axelrod, this bill is the answer to all of America’s woes. It will create jobs. It will invest in infrastructure. It will save the US from the brink of depression. It will prove that President Obama is the world’s saviour.

The Wall Street Journal ran a piece this weekend which detailed each category and associated amounts of spending under this bill. After printing the 38 page article, (I read better off of paper than the computer screen. I do re-use paper where it is possible), I spent some time sifting the data to determine how much of the $787 billion is actually meant for investing in America’s future and how much is going to “temporarily” expand the size of government.

These are important distinctions. I’m not generally a supporter of government intrusion or bail outs, but if it is accepted that government is going to provide stimulus (and it is) then the stimulus should be in the form of capital investments and not ongoing program expenditures.

Capital investments in roads, railways, telecommunications infrastructure, satellite communications, hospitals etc. will provide long term benefits. Ongoing programs will do nothing more than permanently expand the size of America’s government.

In broad strokes, I’ve defined:

  1. Investment as capital expenditures that invest in plant and infrastructure.
  2. Programs as spending that will either need to be cut once the tap is turned off or be maintained by the government in perpetuity (remember Canada’s temporary 1917 Income War Tax) with increased taxes.
  3. Tax adjustments as anything that provides a deferral of tax (not actually a reduction), acceleration of write downs (not really a tax deduction), tax credits (refundable and non-refundable) and tax reductions.

Here’s a summary of how this bill spends taxpayers’ money:

stimulus-bill-02162009

 

Aside from the concept of a government stimulus, the thing that concerns me the most about this huge government stimulus is that 43% of the money (almost $332 billion) is allocated to programs that will be anything but temporary. Once the stimulus runs out, the US government will either need to keep funding these programs or the people they employ will be out of work.

Only 19% of the stimlus is marked for investing in America’s future. If this were truly a “job creation” program and not a “government expansion” program, I propose that none of this misplaced stimulus would be for programs and all of it would be alocated to rebuilding US plant and equipment.

I haven’t performed the same analysis on Canada’s recent budget, but am interested in seeing any research that you may have done.

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