In 2010, the Republicans and President Obama agreed to a one-year payroll tax cut of 2 percentage points on an employee's share of the tax for 2011. The Republicans were happy to agree to this budget-busting bill because they love lower taxes. Also, the president said he wanted this to go along with the Republicans' defense of a 15% tax rate for hedge fund operators, special short-term tax breaks for business and a two-year extension of the Bush Tax Cuts.
I don't know why these creatures from the D.C. lagoon of special interests and ideology expected that cutting the rate of taxes on people who already have jobs would benefit people without jobs. Cutting the rate is like dropping money from a helicopter. However, we know Fed Chief Ben Bernanke thought this was a good, albeit extreme, Keynesian strategy that would induce people to spend money, which would then create economic activity and growth through the magic of a multiplier effect. In theory, giving people who already are employed more money to spend at the mall or to use to pay down debt or save would create a trickle-down economic growth effect.
The plan certainly helped retailers as well as their suppliers and employees, but we lost an opportunity to instead spend $120 billion dollars on new infrastructure and repairs, which would have given taxpayers something for their money and construction workers some badly-needed jobs. In addition, the payroll tax cut will cost us between $115 billion and $120 billion dollars in 2011 lost revenue for the government -- and a similar amount if Congress extends for 2012 as President Obama wants to do.
The final stimulus bill that the President signed had thousands of earmarks in it, even though Obama had said he was opposed to it having any earmarks attached. But in the interests of getting the action passed, we got a massive "Christmas Tree" bill that favored protecting the jobs of state and local union workers yet provided very little in the way of needed infrastructure repairs and new infrastructure that would have somewhat stabilized the construction worker labor market.
One reason why the Bankers got bonuses in 2010 was that the president did not make sure it would not happen. The fact that banks with massive robo-signing issues paid any bonuses the past two years is disgraceful. It shows what a sham our bank regulators really are.
Also in 2010, President Obama also approved the Home Buyers Tax Credit, a gift to the homebuilding Industry, which had already received a big gift from Congress in the form of unlimited tax-loss carryback that funneled hundreds of billions of dollars into the coffers of the homebuilders from our pockets. The D.C. crowd liked it so much that they extended and expanded it. This program killed any chance of recovery in the existing home market because it applied only to newly built homes. This, in effect, increased our housing stock even though we have millions upon millions of foreclosed, empty and partially-built, abandoned homes. Many builders abandoned their existing subdivisions and opened small subdivisions with no for sale and no foreclosures and half built homes and then sold them to buyers who used the Home Buyers Tax Credit and easy financing. This program cost a huge amount of money and while it did increase employment for construction workers for a brief period of time, it collapsed all too quickly, bringing the industry back to rock-bottom.
Compare the Home Buyers Tax Credit with the much-reviled Cash for Clunkers bill. Although this program was also very expensive, it did remove a huge number of vehicles from our national inventory and helped to support the bailouts of General Motors (GM) and Chrysler. This protected our investment in those companies and helped all the local auto dealerships clean out all their inventories as well as the inventories at the plant levels. It also helped save Ford (F). The obvious difference in the two very expensive programs was that one of them increased inventory while the other program massively reduced inventories. The Clunkers program also increased average fuel mileage for our fleet of vehicles, which was a good thing.
On a final note, President Obama is also advocating an extension to the 99 weeks that the unemployed in some states receive now. This is a perfect example of the illogic that pervades Washington, D.C. First, Congress and the President starve the country of badly need infrastructure and instead give people with jobs a tax cut to spend as they wish. Second, when their plan did not create jobs, they tell you that we should spend more money on an extension of unemployment benefits.
President Obama and both parties in Congress have hurt both the housing and the job markets with policies that had to have been the result of ideology and campaign contributions. Only ideology and campaign contributions can account for the missteps that continue to this day.
