A Christian Liberal is NOT an oxymoron.

Posted by XT on January 18th, 2008 in US News

President Bush spoke today about what he wants Congress to do to stimulate the economy. As with everything he does when he’s not sitting on the toilet, it has ideological blinders so large that his only cure amounts to “more of what I’ve been doing”. Unfortunately, it’s what he’s been doing that has gotten us here. What he wants is a lot of stuff, but it isn’t an economic stimulus.

The problem with our economy is that it is fueled almost entirely by consumer spending. Unfortunately, that consumer spending has not been fed by increasing wages. Take a look at the following graph from the Economic Policy Institute:

I’ll let the EPI interpret that for you:

How have real hourly and weekly earnings fared over the recovery that began in November 2001? The gains have been marginal: both are up only 1%, as shown in Figure 2. Real earnings were largely stagnant through mid-2006, until rising sharply for a few months due to very low inflation.

Most recently, the slowing economy has led to diminished nominal wage growth, while inflation, due to higher energy costs, has accelerated. This combination—slower growing nominal wages and faster growing prices—has eroded the value of most workers paychecks.

So how do you boost spending when your paycheck is worth less and less? Credit, of course. Consider this:

Credit card debt contributes to families financial struggles. The share of families with high credit card payments above 10 percent of income rose from 13.5 percent in 1989 to 23.0 percent in 2004

This is despite the fact that credit rates fell over that same time period. Of course, no one saw their credit card rates fall appreciably, did they? I didn’t think so.

The other main source of credit for families is their home. By cashing in on their equity, many people were able to liquidize a large portion of this asset and use it for…things. Cars and TVs and Nintendo Wiis, oh my!

But speculation in the housing market – ever see “Flip this House”? – led to the same dead-end speculation always leads. The last people in had to put up the most and there was no sucker buyer waiting to pay their exhorbitant prices. So they defaulted. That started a cascade effect because lenders had creatively cooked their books to hide their real level of risk. In response, they stop lending. Credit begins to dry up.

No more easy credit and still-stagnant wages means “no money to grow the economy”.

President Bush wants to make his tax cuts permanent. That would be a bad idea. The plethora of money that has been accumulating at the top of the pyramid needs to start flowing downward. The reason is simple – people at the bottom of the income ladder spend 100% of what they get. Give them 10% more, and they’ll spend that, too. Give people at the top another 10% and they’ll move it out of the country – because it makes more money for them overseas.

The fastest way to help low and middle income earners is to abolish the 10% tax bracket. Of course, there are some who oppose this because it doesn’t help those at the very bottom and those at the very top will benefit more than those in the middle. Well, that’s going to happen with any plan. But abolishing this tax bracket gives the exact same benefit to anyone who earns enough to make it out of the 10% tax bracket – and that is the vast majority of us.

It shouldn’t be the only thing that gets done. For one thing, it is going to have to be offset by a higher tax rate at the top in order to make it budget neutral. So that takes care of the problem of the truly wealthy getting a benefit for which they have no real need. Put in a 1% sur-tax on incomes over $1 million and you’re pretty much there. Anyone want to argue with me that someone who makes a million bucks a year can’t afford to pay 1% more tax? Come on. Get real.

There are other ways to target the truly needy – expand unemployment benefits and food stamps, for example. But we could also increase the standard deduction to a realistic level – say $20,000. Increase the child tax credit and allow people to take up to half of it up-front (which means either cutting checks or allowing people’s paychecks to increase temporarily). Make Social Security payments tax-free for those whose other income does not exceed their Social Security payments. Create a one-time refundable front-loaded tax credit for heating costs.

Again, offset the budget charges with one-time surcharges against incomes in excess of a million dollars. Since this group is going to end up footing the bill for everything else, give them a bone up front – let them withhold up to half of their mortgage interest deduction on their homestead. Their problem, after all, isn’t that they don’t have money but that it might be tied up in payments.

Instead of telling businesses they can get a tax credit for investing in technology – for which there might not be long-term business to sustain – let them write off an extra 3% of all pay increases that go to people who earn less than $100,000. After all, they get to write off the entire expense of payroll when they are figuring their profit anyway. Giving them an extra three percent gives them just enough incentive to push some of those corporate earnings down to where they will feed the economy.

And pass it over the President’s veto and hang it around the neck of every single person that votes against it in Congress. It’s time class warriors started fighting back for the poor and the middle class.

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