Wednesday, July 15, 2009

How not to Stimulate an Economy

From the WSJ (via Greg Mankiw):

House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers. [...]

The House bill would place new taxes on the wealthiest people to help expand insurance coverage to the nation's 46 million uninsured people. The legislation calls for a 5.4% surtax on those with annual gross incomes exceeding $1 million.
As Glenn Reynolds highlights (also from the WSJ): "A new study by the Kaufman Foundation finds that small business entrepreneurs have led America out of its last seven post-World War II recessions. They also generate about two of every three new jobs during a recovery."

It defies reason as to how some people sincerely believe that disproportionately increasing taxes on some of the most productive members of society will result in those same people being even more productive. As Greg Mankiw notes, after you factor in sales taxes, this means that 55 cents for every additional dollar earned would go just to pay taxes - nevermind that new taxes rarely result in the level of new revenues politicians project and nevermind President Obama claims that public funding of healthcare will improve the economy.

Things unfortunately begin to make sense if you assume that these people are less interested in the health of the overall economy and more with catering to their donors - ie public unions. Meanwhile, a poll by CBS News shows "75% believe Obama's stimulus plan has had "no impact" or a "worse" effect on the economy so far" (via Club for Growth). That should be enough to make anyone "go Galt" (DrHelen).

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