Today the Obama administration announced that its Stimulus II bill, as yet unseen but introduced to Congress and the voters last week, will be paid for entirely by tax increases–approximately $450 billion worth. This illustrates the disarray in which the administration finds itself. In Obama’s speech to Congress last week, he indicated that it would be up to the Congressional committee that is charged with finding $1.5 trillion in future cuts to find another $450 billion to fund the current stimulus proposal. That idea is apparently no longer operative.
Which leaves one wondering: what is the point? If the government borrows or prints money and spends it, as with the original stimulus, it may be a terrible idea, but at least we understand what the concept is. It goes back to Keynes. The economy is sluggish because people aren’t spending money; the government can “prime the pump,” get the wheels of commerce rolling again, by injecting demand into the economy in the form of deficit spending. Put aside the debates over whether Keynes ever envisioned anything like the current regime of permanent and ever-growing debt, and whether he was, in any event, wrong. At least, with Stimulus I, we had some idea what the theory was.
Not so with Stimulus II. If Obama proposes to increase taxes on those earning more than $200,000 a year to pay for his spending and tax cut program in its entirety, there is no net injection of demand into the economy. Rather, Obama is simply sucking money out of the private sector so that it can be reallocated by the public sector (i.e., his administration). The essential effect of Obama’s proposal, with its tax increases, is to transfer wealth from upper-income taxpayers to construction workers, teachers and other public employees–that is, from people who earn $200,000+ to people who earn $60,000+ (or more, if their families have two incomes). Is that really what liberalism has come to? Or is it silly to talk about Obama’s proposal as anything other than a part of his re-election strategy?