In 2008, Larry Summers, now chief economic advisor to President Obama, said that any fiscal stimulus bill should be "timely, targeted, and temporary." Mr. Summers wrote that to be timely a stimulus bill should be "based on changes in taxes and benefits that can be implemented almost immediately." The stimulus bill should be targeted to "those with low incomes and those whose incomes have recently fallen for whom spending is most urgent." Finally, the stimulus bill must be temporary and have no impact on the deficit after one year. Increased deficits, Mr. Summers wrote, will only lead to rises in interest rates and undermine long-term growth. However, since it was signed into law February 17, 2009, the economic stimulus bill hasn't been timely nor targeted and I doubt it will be temporary. Economist Milton Friedman once said "there is nothing so permanent as a temporary government program."
In the 224 days since the stimulus bill was signed into law, we have spent $98 billion or 12 percent of the $787 billion. At this rate, it will take the federal government around 1,800 days to spend the entire bill. Ironically, this will put us way past the 2012 presidential election.
President Obama told us that if we passed the stimulus bill we would not see unemployment go above 8 percent and that we would "save or create" 3 million jobs by putting "people back to work." However, since the bill was signed, the economy has lost an additional 2.2 million jobs and the unemployment rate is now at 9.8 percent.
America needs a real stimulus bill. A bill that doesn't pay back the unions and interest groups that helped President Obama get elected. The current stimulus bill simply increases the size and control of government by putting money into the hands of politicians, bureaucrats, and lobbyists at the expense of the private sector. We need a bill that will create long-term permanent jobs, not temporary "shovel-ready" projects and provide tax cuts for businesses.
So what would a successful stimulus bill look like? First, tax cuts must be at the heart of any new bill. Americans believe that tax cuts spur economic growth and create jobs. With a $12 trillion economy, any tax cut must be bold enough to actually work.
Second, a true stimulus bill must be rooted in economic freedom for the American people. An economy centralized in Washington only brings about corruption and political favoritism that we see today. In order to have sustainable, long-term economic growth, we must provide small businesses with pro-growth policies. We can't just simply cut taxes but we must also reign in government spending and fiscal responsibility. An amendment requiring the federal government to balance their budget would be a great start to achieving this.
Third, in order to help businesses, we should implement cuts in Social Security and Medicare taxes. Former Speaker of the House Newt Gingrich is proposing a 50 percent cut in these tax rates. Small businesses would have more money to hire people or invest and employees would see an immediate growth in their take home pay allowing them to spend more in the private sector.
Fourth, the United States has the second highest combined corporate tax rate in the world at 39.1 percent (Japan has the highest rate at 39.5 percent). In order to entice foreign companies to invest in the Untied States, we must lower this rate to a more competitive advantage. Currently, Ireland has the lowest corporate tax rate of 12.5 percent.
During the 1990's, President Clinton and the Republican-controlled House showed us that in order to have economic growth you must have both pro-job and pro-investment tax cuts. The more jobs the private sector creates, the fewer number of people receiving welfare payments or unemployment benefits. By controlling spending, they were able to balance the budget for the next four years.
This is one time when history should repeat itself.