Idea
If I understand correctly, the fundamental Liberal argument for tax-funded stimulus is that the government can allocate resources in a way that will exceed the ability of the free market to create the kind of knock-on upward cycle that ultimately drives real, long-term economic growth.
Since employment is a key driver to this force and is obviously not seeing any measurable progress, “creating jobs” by some means seems to be the ultimate objective to get things going.
As I’ve discussed before, a liberal - in my opinion rooted in a worldview of positive rights and unavoidable requirements for life - sees a lot of demand to be inelastic to price. Raising the minimum wage, for example, should decrease profits rather than discouraging hiring and promoting downsizing. The demand for labor doesn’t change; rather, it’s a “squeeze” of margins that will ultimately result.
You see the same argument applied to taxes: Arthur Laffer gets ridiculed because he ultimately argues that people’s demand for more revenue decreases as their net percentage of profit from that labor decreases. The liberal sees the workforce, especially the evil rich, as static actors, eager to pursue profit at any cost to them financially or personally. Rent control is the same way, as well: placing a harsh price ceiling will not impact quality and availability of housing, only the leaser’s profits.
Taking the liberal philosophy and looking at the economy right now, my biggest gripe would be companies sitting on cash reserves. I feel like you can absolve the investing class of responsibility, since they (if anyone) know better than to sock money away in mattresses; somehow or another, their money gets into the capital market, which in turn grows the available resources for capital investment.
So why tax individuals to mend the damage done by holding vast reserves of cash within investment funds and corporate entities?
I propose this: the government is talking “infrastructure banks” right now instead of straight-up stimulus rhetoric. Take this idea about one hundred steps further and actually take the distinction literally. Start a privately-funded government-managed investment fund. Put Buffett or Icahn in charge of it, for all I care. Somebody credible and not directly a bureaucrat by trade.
Issue bonds of 6 year duration with no payments in the first year. Of course, this is at least in principle (but not principal, ha ha) similar to US treasurys, but the yield on them should be ridiculous in the current lending environment, like 10%. The money is totally ringfenced, with an airtight covenant to only fund jobs-creating infrastructure, energy, and defense research projects with the funds.
This gives the government a nice kitty of cash funded with the idle capital currently getting pathetic money market rates, actually depressed by the current fiscal policy regime.
With sweeping corporate tax reform, elimination of ethanol and other green subsidies, and responsible adjustments to the Social Security retirement age and means testing, the first coupon payments after the first year can be funded with the increased tax revenue, with natural GDP growth from the recovery funding payments after two years or so.
The pet subsidies should be defunded, because smart investments should instead be carried out by the infrastructure bank itself.
The government asks the People to take risks on nonsense investments all the time. Loan guarantees, foreign aid, etc. Why don’t we round up all that idle capital in the market and let the government take a risk on the American economy itself? If we don’t see growth, the government will effectively have to bail itself out through higher taxes or decreased spending, in order to meet the coupon payments on its special debt and avoid devastating default. That will cause public upheaval and massive turnover in the legislature and bureaucracy.
As the constant liberal atrocity of substituting “wealthy” for “high-income” demonstrates, the real liberal desire is to get at wealth. The income tax doesn’t let you do that directly, only incrementally. If you want to talk about “wealthy,” you don’t have to look much further than Apple, whose cash and short-term investments as of latest financials is $28.4 billion. Imagine if you got that money to work on America!