Wednesday, July 28, 2010

Fred Upton's Jobs Plan

Congressman Fred Upton recently sent out a mailer touting his "5 Point Jobs Plan".

It may be here: Upton for All of Us - Fred's 5-Point Jobs Plan, though the site was down as of this writing.

It is important to understand at the outset the free market position on tax cuts. Broad-based, permanent tax cuts benefit the economy, while narrow, short-term tax cuts do not. The reason is that tax cuts create economic growth by changing incentives. When people can keep more of their own money, they produce more. But this only applies to future tax rates, not one-time cuts or rebates. While targeted tax cuts may benefit their particular targets, they do not benefit the economy overall because when government picks winners and losers, it distorts the market. Its choices are inevitably based on fads and political clout. Government does not allocate resources more efficiently than the market, which is based on people risking their own money.

Let's go to the specifics.

1. $6500 tax credit for home purchase and renew the $8000 first-time homebuyer tax credit.

No. The recession began with the bursting of the housing bubble. Government programs and regulations pushed people who couldn't afford houses to buy them, and more houses were built than are really needed. To correct the bubble, prices need to be allowed to fall so that the glut is cleared. This is no doubt tough for homebuilders, but building more unneeded houses will only make things worse.
Score: 0/10

2. Reinstate tax deduction on car payments to spur sales of new cars and trucks.

The fact is that people only need so many cars. Encouraging people to buy cars they don't really need is not going to benefit the economy in the long run. This was the impetus behind the atrocious "Cash for Clunkers" program that Upton championed. CfC shifted demand forward without ultimately increasing it, leading to a worse market later on. It also destroyed wealth by wrecking perfectly good used cars. This item doesn't do that, and is somewhat broad-based, but seems unlikely to be all that successful.
Score: 5/10

3. Repeal Obamacare's employer health care mandate and replace it with a tax credit.

All of Obamacare should be repealed, not just the employer mandate. While a tax credit would certainly be better than a mandate, it doesn't change the fact that health care should not be supplied through employers. Insurance for cars, houses, and life is not supplied by employers, and there is no good reason why health insurance should be. This only occurs due to a provision in the tax code (surprise!). Supplying health insurance through employers needlessly restricts the available choices and hence inflates costs. Further, routine medical care would be better paid out of pocket rather than through a bureaucratic insurance system.
Score: 5/10

4. 20% small business tax deduction. (for five years)

This is pretty broad-based, but the time limit would significantly mitigate the positive effects of this item. Still, this is pretty much a good item.
Score: 8/10

5. Expand nuclear power and train qualified workers.

Picking particular industries for special treatment isn't great, but at least nuclear power is a real wealth creator and not a fad like wind power or ethanol. Removing bureaucratic obstacles to new nuclear plants should suffice; it isn't clear just what means Upton would use to promote it. Government-funded job training shouldn't be necessary; productive industries can afford to train their own workers.
Score: 7/10

Overall score: 25/50 (50%)

Bottom line: don't count on economic recovery under the Upton plan.

No comments: