Will Congress go Wimpy with Economic Stimulus Legislation ?

“The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help.'” – Ronald Reagan, U.S. President

"I will gladly pay you Tuesday for a hamburger today." -- J. Wellington Wimpy, a character in the old Popeye comic strip.

For those of you to young to know Wimpy, he was a habitual deadbeat mooch, so widespread was his reputation for continually deferring his financial obligations that he had difficulty borrowing enough for lunch.

Congress must have missed the news, but it looks like they may be offering a free lunch ... not for the needy, but for the protected masses.

Yesterday, The Wall Street Journal reported “CBO [Congressional Budget Office] foresees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP. That's up from $163 billion last year, or 1.2% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December -- the previous "baseline" assumed 23 million new AMT victims would be welcomed into the fold this year.”

This means that once again the deficit will increase from the prior year.

Now, that projection was before today’s news that economic stimulus package has been devised that would give most tax filers refunds of $600 to $1,200 and also provides tax incentives for businesses. Or as The Wall Street Journal reports “generous tax breaks” for business.

That’s the hook. Like a good game of switcheroo, the headline is tax rebates, but the tax give-aways get buried in the story. What should be a short term, temporary fix to address housing/energy consumer issues may be being used to apply significant changes to benefit business. At this stage, it may be too early to know the details but there was consideration of a number of changes including how long a business may carry forward losses. Some of these changes may have little to do with what caused the economic slowdown yet certain members of Congress have a propensity to exploit the situation.

In fact, under the guise of the economic climate, a number of bills have been introduced.
H.R. 5109 The Economic Growth Act of 2008 which is cosponsored Michele Bachmann and John Kline and has as one of its main points to lower the Corporate Tax Rate to 25% (effectively a 28% rate cut);
HR 5105 which besides the same Corporate Tax Rate cut also includes the elimination of the Estate Tax and makes the Bush Tax Cuts permanent.
HR 4995 which is cosponsored Michele Bachmann and John Kline and also includes the Corporate Tax Rate reduction.

It was just last year that President Bush was uttering the phrase "income inequality" acknowledging that corporate executives bonuses and golden parachutes have gotten out of hand.
Now, we have Republicans in Congress pushing to reduce Corporate taxes instead which I have previously discussed as illogical.

The proposed plan is that business will get 1/3rd, yet since the changes involve the tax code, there is no incentive for the business to take immediate action. Business may elect to wait until customer activity picks up before deciding to increase employment or investment in equipment/facilities.

The missing piece is the lack of extension of unemployment insurance and food-stamp benefits. These programs would have caused an immediate impact. That is a double-whammy. By not including these in this legislation while the problem grows means that there may be need to address this in a few months.

In my view, this plan will only add to the deficit without generating maximum benefits. If business needs incentives, Congress should consider waiving the Social Security matching portion for all new hires – this would encourage businesses that will increase employment levels as business picks up. (Since Social Security is currently “loaning” money to the government for other operations, this deficit will be increased based on true government spending – not being hidden by borrowing Social Security funds.)

This plan must be approved by Congress. Legislation that is passed in haste, can cause more harm than good. Let’s heed Reagan’s words, Government may not solve this problem, but could actually make things worse.

Congressman Tim Walz stood for fiscal responsibility in his AMT vote (and a survey of Republicans supported his vote ). Congressman Walz needs to exercise the same discipline … as certainly, Bachmann and Kline will reward business.

As those of us who remember the Popeye cartoons will recall, Wimpy was usually refused … and it’s time that Congress not be Wimpy.