Obama's Topsy-Turvy Stimulus Plan

Flip it around, Mr. President.

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Again, my take on the Obama stimulus package: I think it needs to be flipped around. Instead of two-thirds spending and one-third (kinda-sorta) tax cuts, it should two-thirds real tax cuts (lower individual, corporate and capital gains rates) and a third for needed infrastructure like the energy grid and such. Economist Stephen Entine in the WSJ today makes a similar case:

To be sure, some infrastructure projects might pass that cost-benefit test (perhaps electric grid modernization, or unclogging strategic rail bottlenecks). Some might keep worthwhile construction going on projects that states might otherwise cancel. But the pork projects on the governors' and mayors' wish lists serve no national purpose.

Ultimately, labor and capital must shift from declining industries and areas to expanding ones -- but intercepting people as they make the shifts and parking them in government projects for a year just delays the adjustment. And the debt and future taxes raised in the process become permanent burdens that shrink private output and income forever after. We need a permanent improvement in the production climate.

What would help? A lower corporate tax rate, as well as a permanent extension of the 2008 expensing provisions and the 2003 dividend and capital gains and top marginal income tax rates.

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