Sunday, January 11, 2009

Thoughts on the Conservative Stimulus Alternative Plan

As a result of my noted federal-spending-for-stimulus skepticism, I received an e-mail this weekend outlining the conservative alternative stimulus plan to be announced by the Republicans on Wednesday. I can't seem to find a version online, but the e-mail stated that the basics were derived from HR 5109. FWIW, here is my reaction to some of the proposals, which is qualified by a lack of details in the outline:
What I generally liked in the proposal for generating stimulus:
  1. Cuts in the income tax rate for all brackets, the corporate income tax rate, and alternate capital gains tax rate. These have a better track record for stimulus than federal spending, and are good for long term economic growth.
  2. The 1% cut in non-defense discretionary spending.
  3. Indexing capital gains to inflation.
What I’m concerned about in the plan:
  1. The repeal of the AMT: I like the principle of the AMT, which is that it taxes a broader base of income at a lower rate. The problem is the added complexity to the existing tax code, but that is better solved, in my opinion, by simplifying the regular income tax code. Repealing the AMT would act as a tax hike for many individuals, which is not what we are looking for in a stimulus plan.

  2. The increased deductions and increased income limits for higher education student loans and expenses: I do not see much opportunity here for stimulus, even in the long term. The marginal benefit would seem to accumulate to income groups that are already attending college, so long term gains are probably very small in terms of greater higher education participation. The greater deduction is not likely to generate much of a work incentive in the form of encouraging firms to hire the labor or for more workers to participate. I can also see it having the effect of crowding out lower income groups due to higher demand.
The proposal will basically serve as political fodder, as the next economic stimulus bill will surely be some version of Obama's current proposal. My current feeling is that Obama's proposal has improved with each major announced revision, but is still not as good as a commitment to doing nothing at all.

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