Talk Elections

http://www.news-leader.com/article/20090423/BLOGS09/90423011/-1/BLOGS09

GOP House scrapping pet projects in favor of $1B tax cut

By Chad Livengood • clivengood@news-leader.com • April 23, 2009

Inside Missouri Politics blog -- Updated at 3:20 p.m.

JEFFERSON CITY — Facing pressure from his caucus, House Speaker Ron Richard says the Republican-controlled chamber is abandoning plans to spend hundreds of millions of federal stimulus dollars on pet projects for members and lobbyists.

Instead, the GOP caucus wants to disburse $1 billion of the state's $2.2 billion in flexible stimulus dollars in the form of a tax rebate, Richard said.

"Our caucus is not willing to spend all of that money," Richard told reporters this morning.

House Budget Chairman Allen Icet said Republicans are now proposing temporarily lowering the income tax rate from 6 percent to 5.5 percent for two years.

Because the proposal comes so late in the session, the tax break proposal would likely be tacked on to a Senate bill and debated next week, House Majority Leader Steven Tilley said.

The decision is a complete reversal from Monday when the Republican-controlled House Budget Committee voted out multiple stimulus spending bills chocked full of one-time projects in their districts and at public universities and community colleges.

Republican House members want to set aside at least $500 million to help stabilize the state's budget in future years, a plan Gov. Jay Nixon and the Republican-controlled Senate have been pushing for weeks.

Senate President Pro Tem Charlie Shields said his chamber favors not spending all of the money at once so it can be used to offset deep budget cuts in fiscal years 2011 and 2012 if the economy continues to falter.

Shields, R-St. Joseph, said a tax rebate to Missourians would not likely stimulate Missouri's economy effectively because most of the state's population lives along the border and spend money in other states.

"A lot of the money leaks out across the state borders," Shields told the News-Leader.

Richard said the majority of Republican House members believe the budget committee "overspent, overreached on frivolous spending."

"Over half the caucus has said we've overspent, we're acting like Washington, D.C.," Richard said during a weekly breakfast with the Capitol press corps.

Richard said projects that are likely to be cut from the final stimulus spending bills include a $9 million earmark Rep. Jay Wasson secured to fund the construction of a wood waste-burning power plant in Douglas County.

The GOP House caucus is meeting at 9 a.m. this morning to discuss a new approach.

Richard, R-Joplin, said replacing the state's emergency radio system remains a top priority, as does paying off $35 million in debt owed to subsidize ethanol plants.

Other priorities include paying for capitol improvement projects at the state's public universities and community colleges, Richard said.

Richard said he and House Budget Chairman Allen Icet plan to have details on what the caucus will agree to pay for by the end of today or early Monday.

Lawmakers have two weeks to finalize spending plans.

The constitution requires the budget for the 2010 fiscal year be passed and balanced by May 8.

"We're on a pretty tight schedule," Richard said.

Sometimes I wonder if they're actively trying to destroy the economy.

The idiots should reduce sales taxes if anything. Lowering income taxes right now won't do jack sh**t.

It is just handing out money to folks, this time with a lateral pass to a state first, rather than coming directly from DC. I don't quite see why that per se would have a negative economic effect. Is Jefferson City that toxic?  I would think handing out money to folks (and yes, consumption tax cuts as noted by sbane probably in the short term would give a greater bang - who cares anymore about the long term?), would help the economy more than spending money on some government infrastructure project or whatever. Granted, perhaps neither will help much. We shall see. Sam tells us to be patient, and he's right!  

Good. This is a better use of the money. Let the American people have the money, what's wrong with that?

because the people aren't as likely to spend it during this economic crisis, which results in a lower eonomic stimulus than targeted investments by the government (in theory at least).

Ya, except when the government actually tries to do stuff itself, well some money for some reason just tends to get "lost" somewhere. It is kind of like a tax. It is "cheaper" to just send the money straight into the wallets of the local denizens, don't you think?

Money is more efficiently spent in public projects or distributing goods and services to the public. How many times must we waste money on rebates and/or tax cuts for people to realize they are not effective?

I believe in the individual good, not the collective good.

Why is distributing goods and services "effective," and distributing cash money not, assuming it is not going to some rich Republican to put under the mattress or something?

Perhaps it is time for a meditation (http://isu.indstate.edu/ilnprof/ENG451/ISLAND/index.html).

Which will be more beneficial to a struggling family? Sending them a $500 check, or by building a new bridge? Hmmm.

Now I certainly don't claim to be an economist or anything.....and I know you are practically an expert ;), but even if tax cuts are "cheaper" in that sense...what does that ultimately have to do with the stimulating effect? If people are likely to save the extra money they get (although I don't know if that's entirely the case.....I think it has a lot to do with psychology....whether they believe they can afford to spend money), wouldn't it then take a greater amount of time to stimulate the economy?

Don't government expidentures (obviously ones that are conducted properly) have the advantage of immediate effects? As opposed to a small tax increase of 0.5% (as proposed in Missouri) that a majority of people might either save....or use to pay off debt, or whatever?

That's not to say I oppose tax breaks...some middle ground probably has to be found, but is it wise to just put money back in pockets without having any idea about whether it'll ultimately help the economy?

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Concerning the federal stimulus package in total....I personally think it could have been conducted much better than it actually was, and that there was quite a bit more potential to make it more stimulating (you'll probably agree and you certainly know more about it ;)).

I think all that stimulus  money should go to the forumites here myself. Most of you are basically impecunious at this juncture , and would spend the money in a flash, no?  :)  And think how much happier all those women BRTD patronizes would be to boot!

Some of this is short term versus long term. Consumption helps in the short term, but the debt servicing costs down the road, just makes that particular anchor a bit heavier. If money is not spent on consumption, but invested, it gets "spent" down the road as bricks and mortar is laid down upon the Fruited Plain, and assists in making the economic system just that much more productive per capita. I understand the politicians and the public are worried now about getting through the week, as opposed to how large the economic pie will be out there over a horizon not yet sufficiently tangible to assuage the angst.

Now it is off to the gym to do my bit to help jump start the economy.

The question, though, is whether the type of establishments BRTD regularly spends money on are the type of business we want to be stimulating ;)

Well, if you want to go for a very literal view of the whole "stimulus package" thing.

Because it is going to be put under a mattress. Not by a rich Republican (at least, not all of it), but it's not going to be spent in such a way as to improve the economy. It's not going to go to paying anyone wages, it's not going to go to improving transportation or industry, it's not even going to go to loosening credit strings. You kind of got the point with the BRTD comment without realizing it--what money is spent is spent on things like strip clubs that don't provide any benefit to the economy at all.

Now, you're arguing that government spending gets swallowed up into waste--but surely if the Missouri legislature were really concerned about waste, they could make sure the money spent wasn't being wasted. Clearly, they don't take that idea seriously. They just want to make themselves popular because cutting taxes is always popular even when it's a terrible idea.

Ya, I have my own ideas about how to financially "assist" that particular cohort of individuals, but hey, I think BRTD is sort of on the right track.  I just prefer to take the bullet train myself is all. :P

Hey Verily, you don't think making financial investments has some benefit to the economy, including well, generating some jobs and all? Granted it is all a matter of degree, but the connotation I get from your post, is more of a Manichean all or nothing paradigm.

The whole point of Keynesian stimulus is spending for the sake of it, so it doesn't matter if the money is spent building a homeless shelter, on a strip club, or indeed for digging and filling holes, which just begs the question of why is this different than giving it to people in exchange for nothing.  There is absolutely no basis for saying strip clubs don't provide any benefit to the economy at any rate. If they didn't they would have no patrons.

What you are thinking of is in terms of public investment cost-benefit analysis, but that is only relevant within the neoclassical paradigm that government spending for its own sake reduces welfare, while at the same time increasing GDP.

Tax cuts don't go towards economically useful investment, pretty much at all. They either go towards services spending (strip clubs), which is the least efficient method of stimulating the economy, or towards long-term, low-payout investments (bank accounts, maybe college funds, etc.).

In an economy such as this one, essentially all extra spending is directed towards small-time luxuries, which might include chocolates, movie/sports/concert tickets, strip clubs, and other "comfort" service industries. Bono is incorrect to say that these contribute to the economy significantly at all as there is no product being created. Compare, say, spending a certain amount of money on building a bridge or on ten thousand people going to a sports game. The people at the sports game will have fun, and their money will go to the sports team, but the money will merely enter circulation without any direction at all; it's not accomplishing anything. The bridge, though, will be beneficial in the long-term; it might prevent a bridge collapse which would, in the future, kill ten of those ten thousand people you might have sent to a sports game.

When you cut taxes during a serious recession, you're basically investing in the short-term pleasures of the people rather than anything productive. From a political point of view (i.e., getting reelected), it might be better if the people are satiated by their entertainment money. But from an economic point of view it's clearly better if the public good is placed above short-term pleasures.

Once again you are showcase your ignorance of economics.

In Keynesian economics, it doesn't matter where you spend money at all, provided you do spend it. That is because the stimulus effects it supposedly confers come not from the things money is spent on, but from the multiplier effect of having it spent at all.

Also, economics makes no judgments on preferences. There is nothing in economic science that says "short term pleasures" benefit people more than infrastructure spending. If the people value those short term pleasures more, than by definition there would be a welfare decrease by making them. This is basic microeconomics.

But that is beside the point. If those investments really have the benefits you ascribe them (which is an empirical question that can only be answered on a case by case basis) then they should be made regardless of any dubious "stimulus" effects they may have, so that angle is completely irrelevant.

Will individuals ever collude together and build a bridge though?  Supposing a bridge needs to be built?

My point is that the multiplier effect of tax cuts is essentially nil because of the sort of spending it ultimately entails. Different directions of spending cause different levels of multiplication. If you're denying that, you're just a fool.


You're making an argument on utiles. The economy does not run on utiles, it runs on money. I have nothing further to say.


The stimulus angle is not irrelevant as it provides an additional incentive. Like I said before, the multiplier effects of large-scale projects are much greater than small-scale purchases. So large-scale spending projects are automatically preferred to many small-scale spending projects (i.e., tax cuts).

And certainly there are, at any given time, hundreds or thousands of useful large-scale projects to be performed in any state--school construction/renovation, bridge and highway construction/renovation, new investment in rail, in power plants of any sort, updating government technology, etc. You can't possibly be trying to argue that there are no large-scale projects in Missouri worth spending money on: no schools that are falling down, no bridges that are approaching their lifetime limits, no areas that could benefit from rail connections or bus lines, no power plants that could be made more efficient, etc.

The libertarian argument would be that a private company or person could invest in building a bridge in order to make money out of tolls.

Tax cuts don't effectively work as a stimulus. Then again, Missouri has below average unemployment, which is correlated with it being a McCain state.

Except that this means nothing not economically viable on the small scale will ever be accomplished. If the bridge isn't ever going to make money (that is, if in order to make money the bridge's toll would have to be so high that people wouldn't bother using it), no one will build it. But there are plenty of instances where it's a far greater public good for a bridge to be built that is not economically viable on its own but provides a connection between markets.

Such is the chief argument around rail in the United States. Rail is not designed to make money for the operating organization. A lot of people want the US to build a rail system and then privatize it. But no one will buy the rail system because it's not going to be profitable--or, if they do buy it, they'll raise prices until no one wants to ride the rail system and then will slowly dismantle it. (This is what happens with Amtrak--Congress demands that Amtrak be profitable, so prices are exorbitant, but that discourages ridership and encourages Congress to move away from funding Amtrak.) But it would definitely be to the benefit of the people to have a rail system, and so the money that the government has to invest annually on a publicly owned rail system's maintenance is well-spent.

That is not to say that there is not waste, and strict oversight would need to be maintained to ensure that a public rail system is not wasting money. But oversight should be no barrier to publicly owned railroads.

In some cases, it may be possible to privatize rail lines which are, in fact, profitable. I'm not opposed to privatization in principle there, only to the privatization and subsequent scrapping of marginally profitable or non-profitable public services.

That's not what the empirical evidence says.  (http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf) Moreover, that doesn't follow from your argument at all. Are you saying that things like strip clubs are part of subsistence consumption? That's just ridiculous. Of course, saving equals investment, so there is nothing wrong with money being saved.

I'm making an argument on welfare economics. Do you know anything about the microeconomic literature on public goods valuation, or do you find that only Keynesian economics is worth your attention because it provides a convenient post oc justification for your positions? The end goal of all economic activity is increasing utility, not making more money, and if you forget or deny that you are need to go retake Economics 101 because you obviously didn't learn anything there.


The basic example that is used in Macro classes to showcase how you're taking nonsense, is the example of digging ditches and filling them again. Were the government to increase spending for that, it would have to raise taxes (or borrow, which per Ricardian equivalence has the same effect). This leads people to increase their labor to pay the extra taxes, leading the product to increase, which according to you, would be a great benefit. But since this product increase crowds out private consumption and investment, and since this government spending is producing nothing useful, people are left with less consumption and leisure, and nothing to gain from it, so that there are no welfare gains even though GDP increases.

I don't know that, and you don't know that either, despite all your bravado. Did you make cost-benefit analysis on all those "investments"? You just like government spending by default and will support whatever instance of it.

To reiterate, whether some government project provides a net social benefit is a matter that cannot be answered based on theory alone. It has to be answered empirically on a case by case basis.

My opinion of Missouri continues to go down...

Oh and I agree with everything Verily has said in this thread so far.

Verily, if Obama gives me a substantial tax cut, I assure you that it will all you into investment.  So doesn't that make it a good idea?  :)

Bono's point reminds me of the Comecon economic block. It at one time had a rather impressive GNP statistically in its mostly autarkic economy. Then, when the block became less impermeable economically, and the value of the "goods" it was producing was tested in the world wide market, it turned out that much of those "goods" were largely worthless, and the statistical GNP came tumbling down almost like magic.

You, my friend, are not representative. From the economic perspective, it would be great if we could cut taxes on the small handful of people who would actual invest that money (and no, it's not "the rich" as a general group). But, from the perspective of fairness, we can't cut taxes for just one random group of people. And of course from a practical perspective we can't easily identify the investors anyway. :)

On the larger scale, the small number of people who would do things which are better for the economy than public works projects fade into irrelevance against the large number of people who would do things which are less beneficial to the economy than public works projects.

It's worth pointing out that "not being beneficial to the economy" doesn't necessarily translate into "wrong decision". Saving money is the right idea on the individual level right now provided you don't have a large disposable income, but if everyone saved their money the economy would collapse. Look at Japan in the '90s (or now, actually). Individual fiscal responsibility is through the roof, but the economy is in tatters.

Quite frankly, there are a lot of infrastructure projects around this country that desperately need to be done regardless of the economy.

To look at it from another perspective, here in Washington, I've been reading about how a lot of state transportation projects have recently finished under budget because the construction companies are getting very competitive with each other (and charging less) due to the economy, saving the state a lot of money. The state is starting to move forward with some very expensive projects now. Part of me thinks "At least it will cost a lot less than if the economy were booming." Is this a benefit? Something to consider? Or am I missing something? I'm no expert on this sort of thing and I will not pretend like I am.


What if the current bridge suddenly collapses because it was not replaced in time? What if such a collapse crippled the region's already struggling economy, and prevented one of the parents from getting to work, causing them to lose their job?

Or, for a more likely scenario, what if the children of the family, and hundreds of others, were not properly educated in math and science? What if the kids didn't even know how to use a computer? What will help them more, funding a proper education that will help ensure them success in their futures, or $500? What will be better for America, a modern workforce that can compete on a global stage, or falling behind the rest of the world and turning into Russia 2.0?

What will be more valuable to an uninsured struggling family with a seriously ill father... $500 or universal health care? Hmm.

Those are pretty obvious answers.  We need investment in infrastructure.  It provides jobs right away while making for a more efficient economy in the long run.

Bono's big blab session about "digging and filling holes" is completely irrelevant here.  If we didn't need these investments, his argument might hold up.

Then again, I'm not sure about Missouri.  Maybe they have good infrastructure and a tax rebate is the best solution in this particular case.

Let them cut taxes for those hillbillies in Branson. Who cares?

Keynes actually made the point post-WWII that he thought directly giving money from the government to its citizens was a much more effective means of "stimulation" as opposed to tax cuts or government projects.

This mainly had to do with his experiences during the GD, namely:
1) Government projects took a long time to get going, thus dispersing the stimulative effect.
2) Government spending towards these projects was often haphazard, such that private investors were unable to anticipate where the money was going to spent and when.  This caused those investors to stay on the sidelines, such that after the project was finished, the workers went back to being unemployed.
3) Where government projects were not haphazardly commenced, they often crowded out private investment in the same areas.

I'm not going to really touch any of the other issues apparent here, just wanted to point that out.  :)

Correct.  And this is why Keynesianism is so correct.

cite?

Well, think about it - if you give money out to people to who are too poor to pay taxes they are inherently more likely to spend it than people who have such high incomes that they already pay taxes.

Maybe.  Do "public projects" and "distributing goods and services to the public" go entirely to people who don't pay taxes?

No, true.  But I suppose that in theory many of the people thus employed with otherwise be unemployed. 

I agree entirely.

A question about Amtrak, though....is it that much more expensive on the East Coast than it is in the Midwest?

I can take a train from Alton to Chicago for $22.