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Are Small Biz Incentives The Best Way To Stoke The Economy?
 

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Not even close, says Mark Zandi of Economy.com. In fact, according to Zandi's study, they're the least we can do -- and by that he means the worst we can do. His phrasing is more gentle, but Zandi calculates that every dollar that the Treasury spends on the business tax incentives proposed in the House stimulus package generates just 27 cents of added GDP in one year. "The economic bang-for-the-buck of bonus depreciation is very modest," writes Zandi. "Indeed, of all the tax and spending policies considered, it provides the least amount of stimulus. Such incentives offer a limited boost because many businesses have difficulty quickly adjusting long-planned capital budgets. Moreover, most investment is made by businesses with no tax liability in the first place." Other non-performers include making the Bush tax cuts permanent (29 cents in added GDP for every dollar it costs the government) and cutting the corporate tax rate (Republican front-runner Sen. John McCain's favorite, but worth only 30 cents).

According to Zandi and other economists, the best measures for providing economic jolt are those that target the lowest-income Americans quickly and directly. Zandi calculates that the best ways to proceed are in fact spending increases: temporarily bulking up food stamps ($1.73 in added GDP per dollar spent), extending unemployment insurance ($1.64), and building or rebuilding infrastructure ($1.59). After these, and general aid to state governments ($1.36), comes the Bush-House tax rebate ($1.26).

Meanwhile, the Senate begins considering a bill that would, in the words of Finance Committee Chair Max Baucus, "improve upon" (read: "completely upend") the package that passed the House of Representatives yesterday by a vote of 385-35. While the Montana Democrat's legislation follows Zandi recommendation to extend unemployment insurance, it also shrinks the rebate for the middle class and then extends this smaller rebate to more Americans. The income-earning poor will get a bigger check than under the House plan--$500 instead of $300 -- but so will the wealthy. The genteel Senate forces a Hobbesian choice, nasty and brutish: to get the stimulus to the people who need it most requires diluting it for families who also need it, while bestowing cash on those who plainly don't. Yech.

I know that latter category includes a fair number of Inc.com readers. But while the Senate puts you on the gravy train, you can hardly consider it a free lunch: inevitably, we'll all reimburse the government for the stimulus package's $150 billion price tag, probably in higher taxes. The Treasury is simply borrowing against the future to give us a little bounce today.

I've said this before, and I'll say it again: people who say the Democrats won't do the work of the rich sorely underestimate those donkeys.

Last updated: Jan 30, 2008




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