Spending A Trillion Dollars

February 24, 2009
The $787 billion stimulus plan (1.1MB pdf) that was signed into law last week will end up costing about one trillion dollars over the next 10 years when you factor in the interest on the debt required to pay for the spending spree.  The plan was rushed through Congress so fast that no one in the House or Senate even had a chance to read the entire bill before having to vote yes or no.  Just like the $700 billion financial industry bailout package last year, it was declared a major crisis that had to be enacted immediately and there was no time for debate or discussion of alternatives as gloom and doom would surely befall us if passage did not occur in a matter of hours.

Now that people have actually had a chance to read the bill, questions about whether or not it will really work and whether or not it is the type of spending for which we should be incurring a trillion dollars of debt are starting to be asked by more and more politicians, commentators, and ordinary citizens.  The vast majority of the spending will not even occur this year, when it is needed most to stimulate the economy.  It is not a set of coherent programs and projects aimed specifically at increasing employment and helping those directly hurt by the recession, as it was touted by the President and Congressional leadership.  Much of the bill appears to just be an amalgam of expenditures targeted toward special interests and ideological pursuits, most of which would not pass muster with the American people if debated on their own merits.  Spending staggering amounts of money on programs that simply expand the size, scope, and influence of the federal government is not an appropriate free market response to a recession and will cause grave harm to our economy and our society in general over the long term.

There are much better methods of injecting a fiscal stimulus of this magnitude into the economy that would create or preserve many more jobs and do so significantly faster than the plan that was just passed.  These alternative approaches would also lead to greater long term prosperity while leaving consumers and free markets in charge of determining which industries and companies will survive this recession, not which ones are better at lobbying Washington for bailouts, grants, loans, or other assistance that essentially reward mismanaged companies, unprofitable companies, or entire industries that are not economically viable without extensive government support.

Here are three different proposals to spend approximately the same amount of money as the stimulus plan that the vast majority of Americans would be expected to strongly support:

1. Eliminate the 6.2% employee Social Security tax for 2009 and 2010.  Total estimated cost would be $740 billion.  It would in essence give each person making less than the $106,800 threshold a 6.2% raise in every paycheck for the next two years.  Higher income individuals would also receive an increase in take home pay until they hit the threshold.  Aggregate demand would be strengthened enough to support millions more jobs and the free market would decide winners and losers as companies compete for the additional consumer spending that would result.


2. Send a check for $6,500 to each of the approximately 116 million households in the U.S. with the provisos that it must be spent in 2009, spent in this country, and spent in an approved manner or it will count as income for tax purposes and a tax penalty will be assessed.  Approved spending would include: at least $3,000 on the purchase of big ticket items (car, washer/dryer, refrigerator, television, furniture, home improvement or repairs, etc.), at least $1,000 on clothing and accessories, and at least $1,000 on eating out.  The remaining $1,500 can be used to buy any products or services, but it must be spent.  The total cost would be about $754 billion and it would create or preserve millions of manufacturing and service sectors jobs at companies that produce or sell products consumers want or need.


3. Eliminate all individual income taxes for the bottom 90% of taxpayers for 2009 and 2010.  The total estimated cost is about $335 billion each year, or $670 billion.  That leaves enough to give the top 10% of taxpayers some type of break also, say a 5% discount on the taxes that would otherwise be owed for those two years at a total estimated cost of about $37.5 billion each year, or $75 billion.  Combining both the eliminated and discounted taxes brings the total estimated cost to $745 billion.  Consumers would decide how to spend the extra money and the free market would decide what companies benefit.

It is not too late to insist that our elected officials spend our money more prudently, especially since the Congressional Budget Office (CBO) estimates that only about $185 billion of the stimulus plan will be spent this year.  If a grassroots effort to redirect the focus of the massive amount of spending that is undoubtedly going to take place were to take hold in this country, we could change the direction we are heading and force the politicians to adopt sound fiscal policies that will actually contribute to our nation's economic viability and preserve free market principles.  Don't ever let the politicians forget that it is our money they are spending and that they were elected to represent us, so we can and should let them know how we want it to be spent.