An Example of How Not to Stimulate Economic Growth

Posted by Jeff Carter
on June 27th, 2011

This article just released by Bloomberg. Obama is trying to position himself as pro-business. “Look, I am giving away 72 billion in tax breaks. Let’s raise the debt ceiling.”

The problem is that this doesn’t do anything for the economy. It’s only shuffling paper. Accounting profits, not real economic profits.

“Ending the so-called last-in-first-out, or LIFO, provision, a method of accounting for inventory costs, was among options offered by White House officials for raising $400 billion in revenue over 10 years during seven weeks of negotiations led by Vice President Joe Biden, the people said, speaking on the condition of anonymity because they weren’t authorized to comment publicly.”

This is the economic neophyte way of growing GDP. Businesses aren’t going to change their production schedules because of a change in the way they account for inventory. They still have the same costs to build and sell that inventory.

If Obama truly wanted to increase production, he would lower the corporate tax rate. The next step is to end the tax on dividends, forcing companies to grow and hire more employees, or distribute excess cash to shareholders so they could reinvest it in companies that they think will grow.

The problem is the way the Democrats see the budget. If they cut taxes then they don’t recognize the economic gain from them in their budget numbers. They see everything as a zero sum game.

Only way to get growth is to incentivize private industry to grow is via real broad based marginal tax cuts. As former Chicago mayor Harold Washington said, this proposed tax cut is, “Hocus pocus dominocus.”

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