Missouri to use Stimulus Money to Cut Taxes

[Bono]

http://www.news-leader.com/article/20090423/BLOGS09/90423011/-1/BLOGS09

GOP House scrapping pet projects in favor of $1B tax cut

By Chad Livengood • clivengood@news-leader.com • April 23, 2009

Inside Missouri Politics blog -- Updated at 3:20 p.m.

JEFFERSON CITY — Facing pressure from his caucus, House Speaker Ron Richard says the Republican-controlled chamber is abandoning plans to spend hundreds of millions of federal stimulus dollars on pet projects for members and lobbyists.

Instead, the GOP caucus wants to disburse $1 billion of the state's $2.2 billion in flexible stimulus dollars in the form of a tax rebate, Richard said.

"Our caucus is not willing to spend all of that money," Richard told reporters this morning.

House Budget Chairman Allen Icet said Republicans are now proposing temporarily lowering the income tax rate from 6 percent to 5.5 percent for two years.

Because the proposal comes so late in the session, the tax break proposal would likely be tacked on to a Senate bill and debated next week, House Majority Leader Steven Tilley said.

The decision is a complete reversal from Monday when the Republican-controlled House Budget Committee voted out multiple stimulus spending bills chocked full of one-time projects in their districts and at public universities and community colleges.

Republican House members want to set aside at least $500 million to help stabilize the state's budget in future years, a plan Gov. Jay Nixon and the Republican-controlled Senate have been pushing for weeks.

Senate President Pro Tem Charlie Shields said his chamber favors not spending all of the money at once so it can be used to offset deep budget cuts in fiscal years 2011 and 2012 if the economy continues to falter.

Shields, R-St. Joseph, said a tax rebate to Missourians would not likely stimulate Missouri's economy effectively because most of the state's population lives along the border and spend money in other states.

"A lot of the money leaks out across the state borders," Shields told the News-Leader.

Richard said the majority of Republican House members believe the budget committee "overspent, overreached on frivolous spending."

"Over half the caucus has said we've overspent, we're acting like Washington, D.C.," Richard said during a weekly breakfast with the Capitol press corps.

Richard said projects that are likely to be cut from the final stimulus spending bills include a $9 million earmark Rep. Jay Wasson secured to fund the construction of a wood waste-burning power plant in Douglas County.

The GOP House caucus is meeting at 9 a.m. this morning to discuss a new approach.

Richard, R-Joplin, said replacing the state's emergency radio system remains a top priority, as does paying off $35 million in debt owed to subsidize ethanol plants.

Other priorities include paying for capitol improvement projects at the state's public universities and community colleges, Richard said.

Richard said he and House Budget Chairman Allen Icet plan to have details on what the caucus will agree to pay for by the end of today or early Monday.

Lawmakers have two weeks to finalize spending plans.

The constitution requires the budget for the 2010 fiscal year be passed and balanced by May 8.

"We're on a pretty tight schedule," Richard said.

[Bono]

Good. This is a better use of the money. Let the American people have the money, what's wrong with that?

Money is more efficiently spent in public projects or distributing goods and services to the public. How many times must we waste money on rebates and/or tax cuts for people to realize they are not effective?

Why is distributing goods and services "effective," and distributing cash money not, assuming it is not going to some rich Republican to put under the mattress or something?

Because it is going to be put under a mattress. Not by a rich Republican (at least, not all of it), but it's not going to be spent in such a way as to improve the economy. It's not going to go to paying anyone wages, it's not going to go to improving transportation or industry, it's not even going to go to loosening credit strings. You kind of got the point with the BRTD comment without realizing it--what money is spent is spent on things like strip clubs that don't provide any benefit to the economy at all.

Now, you're arguing that government spending gets swallowed up into waste--but surely if the Missouri legislature were really concerned about waste, they could make sure the money spent wasn't being wasted. Clearly, they don't take that idea seriously. They just want to make themselves popular because cutting taxes is always popular even when it's a terrible idea.

The whole point of Keynesian stimulus is spending for the sake of it, so it doesn't matter if the money is spent building a homeless shelter, on a strip club, or indeed for digging and filling holes, which just begs the question of why is this different than giving it to people in exchange for nothing.  There is absolutely no basis for saying strip clubs don't provide any benefit to the economy at any rate. If they didn't they would have no patrons.

What you are thinking of is in terms of public investment cost-benefit analysis, but that is only relevant within the neoclassical paradigm that government spending for its own sake reduces welfare, while at the same time increasing GDP.

[Bono]

Hey Verily, you don't think making financial investments has some benefit to the economy, including well, generating some jobs and all? Granted it is all a matter of degree, but the connotation I get from your post, is more of a Manichean all or nothing paradigm.

Tax cuts don't go towards economically useful investment, pretty much at all. They either go towards services spending (strip clubs), which is the least efficient method of stimulating the economy, or towards long-term, low-payout investments (bank accounts, maybe college funds, etc.).

In an economy such as this one, essentially all extra spending is directed towards small-time luxuries, which might include chocolates, movie/sports/concert tickets, strip clubs, and other "comfort" service industries. Bono is incorrect to say that these contribute to the economy significantly at all as there is no product being created. Compare, say, spending a certain amount of money on building a bridge or on ten thousand people going to a sports game. The people at the sports game will have fun, and their money will go to the sports team, but the money will merely enter circulation without any direction at all; it's not accomplishing anything. The bridge, though, will be beneficial in the long-term; it might prevent a bridge collapse which would, in the future, kill ten of those ten thousand people you might have sent to a sports game.

When you cut taxes during a serious recession, you're basically investing in the short-term pleasures of the people rather than anything productive. From a political point of view (i.e., getting reelected), it might be better if the people are satiated by their entertainment money. But from an economic point of view it's clearly better if the public good is placed above short-term pleasures.

Once again you are showcase your ignorance of economics.

In Keynesian economics, it doesn't matter where you spend money at all, provided you do spend it. That is because the stimulus effects it supposedly confers come not from the things money is spent on, but from the multiplier effect of having it spent at all.

Also, economics makes no judgments on preferences. There is nothing in economic science that says "short term pleasures" benefit people more than infrastructure spending. If the people value those short term pleasures more, than by definition there would be a welfare decrease by making them. This is basic microeconomics.

But that is beside the point. If those investments really have the benefits you ascribe them (which is an empirical question that can only be answered on a case by case basis) then they should be made regardless of any dubious "stimulus" effects they may have, so that angle is completely irrelevant.

[Bono]

Hey Verily, you don't think making financial investments has some benefit to the economy, including well, generating some jobs and all? Granted it is all a matter of degree, but the connotation I get from your post, is more of a Manichean all or nothing paradigm.

Tax cuts don't go towards economically useful investment, pretty much at all. They either go towards services spending (strip clubs), which is the least efficient method of stimulating the economy, or towards long-term, low-payout investments (bank accounts, maybe college funds, etc.).

In an economy such as this one, essentially all extra spending is directed towards small-time luxuries, which might include chocolates, movie/sports/concert tickets, strip clubs, and other "comfort" service industries. Bono is incorrect to say that these contribute to the economy significantly at all as there is no product being created. Compare, say, spending a certain amount of money on building a bridge or on ten thousand people going to a sports game. The people at the sports game will have fun, and their money will go to the sports team, but the money will merely enter circulation without any direction at all; it's not accomplishing anything. The bridge, though, will be beneficial in the long-term; it might prevent a bridge collapse which would, in the future, kill ten of those ten thousand people you might have sent to a sports game.

When you cut taxes during a serious recession, you're basically investing in the short-term pleasures of the people rather than anything productive. From a political point of view (i.e., getting reelected), it might be better if the people are satiated by their entertainment money. But from an economic point of view it's clearly better if the public good is placed above short-term pleasures.

Once again you are showcase your ignorance of economics.

In Keynesian economics, it doesn't matter where you spend money at all, provided you do spend it. That is because the stimulus effects it supposedly confers come not from the things money is spent on, but from the multiplier effect of having it spent at all.

My point is that the multiplier effect of tax cuts is essentially nil because of the sort of spending it ultimately entails. Different directions of spending cause different levels of multiplication. If you're denying that, you're just a fool.

That's not what the empirical evidence says. Moreover, that doesn't follow from your argument at all. Are you saying that things like strip clubs are part of subsistence consumption? That's just ridiculous. Of course, saving equals investment, so there is nothing wrong with money being saved.

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You're making an argument on utiles. The economy does not run on utiles, it runs on money. I have nothing further to say.

I'm making an argument on welfare economics. Do you know anything about the microeconomic literature on public goods valuation, or do you find that only Keynesian economics is worth your attention because it provides a convenient post oc justification for your positions? The end goal of all economic activity is increasing utility, not making more money, and if you forget or deny that you are need to go retake Economics 101 because you obviously didn't learn anything there.


The basic example that is used in Macro classes to showcase how you're taking nonsense, is the example of digging ditches and filling them again. Were the government to increase spending for that, it would have to raise taxes (or borrow, which per Ricardian equivalence has the same effect). This leads people to increase their labor to pay the extra taxes, leading the product to increase, which according to you, would be a great benefit. But since this product increase crowds out private consumption and investment, and since this government spending is producing nothing useful, people are left with less consumption and leisure, and nothing to gain from it, so that there are no welfare gains even though GDP increases.

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The stimulus angle is not irrelevant as it provides an additional incentive. Like I said before, the multiplier effects of large-scale projects are much greater than small-scale purchases. So large-scale spending projects are automatically preferred to many small-scale spending projects (i.e., tax cuts).

And certainly there are, at any given time, hundreds or thousands of useful large-scale projects to be performed in any state--school construction/renovation, bridge and highway construction/renovation, new investment in rail, in power plants of any sort, updating government technology, etc. You can't possibly be trying to argue that there are no large-scale projects in Missouri worth spending money on: no schools that are falling down, no bridges that are approaching their lifetime limits, no areas that could benefit from rail connections or bus lines, no power plants that could be made more efficient, etc.

I don't know that, and you don't know that either, despite all your bravado. Did you make cost-benefit analysis on all those "investments"? You just like government spending by default and will support whatever instance of it.

To reiterate, whether some government project provides a net social benefit is a matter that cannot be answered based on theory alone. It has to be answered empirically on a case by case basis.