Tax Reduction, Not Tax Redistribution, Spurs Economic Activity

The National Center for Public Policy Research’s David Ridenour signed on today to a coalition letter on the so-called “stimulous plan” that was organized by the National Taxpayers Union:

January 28, 2008

An Open Letter to the United States Congress: Don’t Fall for “Stimulus” Fairy Tales!

Dear Member of Congress:

On behalf of the millions of members of our respective organizations, we write to urge caution regarding the so-called “economic stimulus” plan that may soon be before you. As more details emerge about this initiative, it is becoming clearer that it would favor wealth redistribution over true economic expansion.

The recently announced plan has some questionable elements, chief among them a $100 billion income tax rebate scheme that will distribute checks of up to $600 for individuals making less than $75,000 and $1,200 for couples making less than $150,000. Even those who had no income tax burden will be eligible for checks worth $300, provided they earned more than $3,000 in 2007. These tax rebates don’t create any new wealth, they simply redistribute resources that the Treasury extracted from others.

In addition, the plan will increase the limits for loans purchased or insured by the Federal Housing Administration as well as Fannie Mae and Freddie Mac. It would increase those loan limits to $725,000 and $625,000, respectively. This expansion of federally sponsored mortgage debt is but a continuation of risky lending practices, backed implicitly by the American taxpayer.

The plan laudably includes roughly $50 billion in tax incentives for business. But while enhanced expensing and carryback provisions constitute worthy tax relief for businesses, the fact that the provisions only apply this year simply means that many businesses will shift their future investments up to 2008, potentially leading to a slowdown of investments in 2009. Consistent and stable business expansion requires long-term policies, not temporary changes.

Despite claims by its proponents, this plan will not lead to the kind of economic stimulus that has been advertised. Congress has no mechanism for “creating” additional wealth in America over the short term, as 1970s experiments in tax rebates and spending increases proved. This plan amounts to taking a bucket of water from the deep end of the pool and pouring it in the shallow end; the result yields neither new water nor a larger pool.

Furthermore, the focus on consumer spending is ultimately misguided. To quote economist Don Boudreaux, “Spending power is not so much the fuel for economic growth as it is its reward. [T]he key to economic growth is investment that raises worker productivity.” If Congress seeks true stimulus that is economically sound, it ought to reduce tax rates and avoid bailing out the housing market. Making the lower capital gains tax rate permanent and reducing inordinately high corporate taxes would have a much more stimulative effect than any rearrangement of existing tax revenue.


Duane Parde
National Taxpayers Union

Jim Martin
60 Plus Association

Tim Phillips
Americans for Prosperity

Amy Ridenour
Vice Chairman
Americans for the Preservation of Liberty

Timothy Wise
Arlington County Taxpayers Association (VA)

Jeffrey Mazzella
Center for Individual Freedom

Doug Bandow
Vice President for Policy
Citizen Outreach

Barbara Anderson
Executive Director
Citizens for Limited Taxation

Clyde Wayne Crews Jr.
Vice President for Policy
Competitive Enterprise Institute

Thomas Schatz
Council for Citizens Against Government Waste

Bob Williams
Evergreen Freedom Foundation

Tom McClusky
Vice President of Government Affairs
Family Research Council

Richard O. Rowland
Grassroot Institute of Hawaii

Jon Coupal
Howard Jarvis Taxpayers Association

John Tillman
Illinois Policy Institute

Karl Peterjohn Executive Director
Kansas Taxpayers Network

Richard Falknor
Maryland Center-Right Coalition

David Ridenour
Vice President
National Center for Public Policy Research

Lew Uhler
National Tax Limitation Committee

Doug Kagan
Nebraska Taxpayers for Freedom

Paul J. Gessing
Rio Grande Foundation

Phil Krinkie
Taxpayers League of Minnesota

Rick Durham
Tennessee Tax Revolt

*Organizations listed for identification purposes only.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.