Another Stimulus?

by Kolin Karchon  In recent days, there has been discussion in Washington about another stimulus package including infrastructure spending and clean-energy initiatives. But where would the money come from? The federal government is facing a mountain of debt and is currently borrowing 43 cents for every dollar it’s spending. As more and more Americans suffer in this economic crisis, spending...

by Kolin Karchon 

In recent days, there has been discussion in Washington about another stimulus package including infrastructure spending and clean-energy initiatives. But where would the money come from? The federal government is facing a mountain of debt and is currently borrowing 43 cents for every dollar it’s spending. As more and more Americans suffer in this economic crisis, spending money to spur investment may seem like a good plan, but in reality, it hurts the economy in many ways.

When the government decides to stimulate the economy by handing out money, it is artificially selecting winners and losers in the marketplace. This can spur inaccurate market signals to potential investors, creating inefficiencies. Consumers, not government, should determine which businesses and industries thrive or fail.

Rather than giving handouts to selected companies, corporate tax rates should be lowered across the board. Currently, the United States has as corporate tax rate of around 35%. This is very high when compared to the rest of the world.

High corporate tax rates generally hurt the economy as companies have less money to invest back into their enterprises to hire individuals or buy capital goods. There is a notion that corporations pay corporate income taxes, but in fact people, not corporations pay taxes. Studies have shown that workers bear most of the burden of corporate income taxes through lower wages.  High corporate taxes can also create an incentive for companies to look overseas for a less burdensome business environment. In 2010, one of the world’s largest life insurers, Zurich, decided to leave their Britain hub for Dublin, where the corporate tax rate was 12.5% compared to 28% in London.

Leaving money in the pockets of taxpayers allows resources to find their highest valued purpose. Perhaps for a real stimulus, the government should look at other nations in regards to tax policy and what is working.