Just Think About It

Think About It

The idea of it being a good practice for government to take action to stimulate the economy by increasing federal spending is under attack by some who think we should never spend beyond what our revenues are. However, exactly what constitutes government stimulation is the subject of much discussion.

Suffice it to say that anytime government takes money and directs it into private hands then government stimulation has occurred. As a matter of fact, the defense industry and other entities spend millions, if not billions, of dollars to lobby the members of Congress for legislation favorable to their specific causes. The money that flows to their coffers from the taxpayer is federal stimulation just as much as was the money delivered through the “Cash for Clunker” plan. Last year my business profited from the deduction offered to people who replaced their inefficient heating and air conditioning equipment with newer more efficient equipment. I can tell you that I was glad to get it. The nation profited from the decreased reliance on fossil fuels and foreign energy sources.

The “entitlements” as people are currently fond of calling them are federal stimulation also. They have real names and serve real purposes. Social Security, Medicare, Veteran's Benefits, Tricare, and Medicaid are a few of them. I think when we refer to “entitlements” we should call them by name. I suppose that every one of us either has received or knows someone who has benefited from those programs. It's a lot different when we make it more personal. Some will say that we worked for those benefits and paid into them our entire lives. Yes, we did. But the amount that we paid into funding those programs will not come close to funding what many of us receive. The sustainability of Social Security depends on some of us dying before we get old enough to collect or, if we collect then dying before we withdraw all we put in. Of our social programs it is the ones that provide medical care that are the biggest problem due to the escalating cost of providing care, especially as we age. I think the question is whether or not we want those benefits for our parents, daughters, sons, and grandchildren. I don't think there will be many of limited means who will reject them.

We spend from 1/3 to ½ of our budget on military expenditures. It depends on whether or not you count the disabilities and veteran's care in those expenses. Or interest on the debt we have incurred to fund those military efforts. During previous eras we enacted taxes to pay for the wars and for the military budget but for the wars in Iraq and in Afghanistan we did not do so. We put them on the credit card. I'm not sure what people think we do with the money we spend on wars and such but we don't take the bulk of it to Afghanistan and just dump it out. We pay for guns, ammo, bombs, aircraft and other war materiel. We buy almost all of it from domestic industries who have stockholders and make a good profit on the sales. That is federal stimulation also.

We use federal dollars to build roads, bridges, airports and so on. Does anyone think that those dollars are ill spent? How does the public benefit other than being able to get in a traffic jam anywhere? We benefit from the increased commerce conducted at those places and from the taxes and jobs that commerce generates. Should we not do that. It is federal stimulation designed to induce certain outcomes.

The fact that federal stimulus has been used to generate commerce is not questioned. The question is whether or not it is the role of government to do that and the uses of that stimulation. There is what many are calling an existential debate going on in our country right now. It is the same one that we had at the founding of the republic and the period before our civil war. It has never gone away and is the source of disagreement in political parties. It is nothing new.

So, when you grumble over having to pay taxes are you saying that we don't need social programs or a military or are you saying you just don't agree with how the money is being used? There is a great difference. The first is an existential argument that severely limits the size and ability of government. The other reflects a general agreement with our form of government but thinks that perhaps we need to not spend that money that way. There is a difference. One is ideological and one is practical.

Oh, here are a few more methods of federal stimulation. The Earned Income Credit that supplements low income families with dependents, the Home Mortgage Interest Deduction that allows you to deduct the amount of interest you pay on your mortgage even if it is a second mortgage, a home refinance or for a second home. The personal deduction that each of us gets and the deductions for dependents. The amount that businesses can deduct for various things such as providing health care for its workers. Each is designed to induce a certain thing that someone feels benefits the nation. These are called the Tax Expenditures and result in almost ½ of the American people not paying any tax at all. Will you give back your tax deductions? I didn't think so.

I am going to end this with a reference to something I used in a previous column said by Robert Rubin. The deficit is the difference between what we ask government to do and the funding we generate to accomplish those purposes. Think about it.

My take on government stimulation. Write me.