Out of Control Policy Blog

GOP Presents New "Stimulus" Ideas

President Obama has said he would take good ideas from anywhere, and asked Republicans in Congress to offer their input on the proposed stimulus package. House GOP Whip Eric Cantor led a committee to come up with some alternative ideas and presented them with House Minority Leader John Boehner this morning. In addition to some of the worthwhile policies already included, such as net operating loss carryback and expensing for small businesses, House Republicans are proposing:

Immediate Tax Relief for Working Families:
Rather than a refundable credit based on payroll taxes, House Republicans propose reducing the lowest individual tax rates from 15% to 10% and from 10% to 5%. As a result, according to GOP research, every taxpaying-family in America will see an immediate increase in their income with an average benefit of $500 in tax relief from the drop in the 10% bracket and $1,200 for the drop in the 15% bracket. A married couple filing jointly could save up to $3,200 a year in taxes.

  • This idea would be much better than the tax credit because it doesn't give money to those who don't pay taxes, and doesn't require federal government spending. South Korea is doing something very similar to this in response to their economic downturn.

Help for America's Small Businesses:
Small businesses (those employing less than 500 individuals) employ about half of all Americans, yet they can be subject to tax rates that siphon away one-third or more of their income. House Republicans propose to allow small business to take a tax deduction equal to 20% of their income. This will immediately free up funds for small businesses to retain and hire new employees.

  • Any tax cut for small business, and business in general, is beneficial in spurring economic growth.

No Tax Increases to Pay for Spending:
The stimulus proposal pending in Congress includes record levels of government spending that will substantially increase the current deficit. House Republicans are concerned that this level of spending will result in some proposing near-term tax increases on American families. House Republicans are insisting that any stimulus package include a provision precluding any tax increases now or in the future to pay for this new spending. House Republicans believe that any stimulus spending should be paid for by reducing other government spending, not raising taxes.

  • While this is a good idea, it is doubtful it could be really enforced.

Assistance for the Unemployed:
Incredibly, the Federal Government actually imposes income taxes on an individual receiving unemployment benefits. House Republicans propose to make unemployment benefits tax free so that those individuals between jobs can focus on providing for their families.

  • This makes so much sense it shouldn't have to be part of the stimulus. Why tax handouts that are tax dollars. Alternatively, just reduce the unemployment checks by the rate of the tax on them. Nevertheless, the GOP is straying, like the Democrats, into just getting a bunch of ideas into one bill. There is little stimulative about unemployment checks, and it could be argued that an increase in unemployment assistance only creates the ability for people to last longer without a job thus slowing any increase in employment growth.

Stabilizing Home Values:
The real-estate market is paralyzed as potential buyers wait on the sidelines waiting for prices to fall even further. This is becoming a self-fulfilling prophecy. In order to encourage responsible buyers to enter the market and stabilize prices, House Republicans propose a home-buyers credit of $7,500 for those buyers who can make a minimum down-payment of 5%.

  • While well intentioned, one reason the real-estate market is frozen is that there was an oversupply of houses. Most people who want a home and can afford one, have a home. The government should be very careful about make the same mistake it did before and over encouraging home ownership, leading to an unnatural return in home prices and another bubble. Reality is that not everyone will own a home, and that is ok.

Anthony Randazzo is Director of Economic Research


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