Opinion

The Great Debate

The $300 billion tax cut: Let’s do it right

Diana Furchtgott-Roth – Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The views expressed are her own. –

President-elect Obama announced on January 8 that he is planning to use $300 billion of his $700 billion two-year stimulus package for tax cuts—but we should not celebrate too soon. Obama is proposing a series of temporary tax cuts, not permanent cuts that would hasten economic recovery.

For two years only, Obama wants to give a tax cut of $500 a year to individuals and $1,000 a year to families, at a cost of about $145 billion over the two years.  Rather than mail out U.S. Treasury checks, as was done last spring in an effort to ward off a recession, he would lower withholding rates so that the tax cut would be spread over the year.

Obama and his advisers evidently believe that a temporary tax cut spread out over 52 weeks would induce more extra spending than one delivered all at once.  The problem is that tax cuts that are temporary have limited effects on spending behavior.  Milton Friedman won a Nobel Prize for his permanent income hypothesis, which showed that spending decisions are made not by the amount of money in consumers’ pockets, but by their expectations of future income.

Businesses with losses in 2008 or 2009 would also receive temporary tax cuts. They would be allowed to convert those losses to cash by applying them to taxes paid in earlier years.  Treasury checks for the losses would give them additional cash for new investments.

Health care degree leads to higher earnings

diana-furchtgott-roth_great_debate– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The opinions expressed are her own. —

The economic outlook is bleak. Unemployment is rising.  Credit markets are dysfunctional.  Students are worried about job prospects, for good reason.

If you’re a young person choosing a career path, forget banking, forget autos, and forget Wall Street.  A new study coming out from the Hudson Institute in January, funded by the Bill and Melinda Gates Foundation, shows that enrolling in a community college and earning a two-year degree or certificate in a health-related profession—the only field that showed significant job gains in November, and the one with the most jobs openings—can open a pathway to higher earnings.

A Christmas wish: End traffic congestion in 2009

diana-furchtgott-roth_great_debate– Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor. The opinions expressed are her own. —

Christmas Day in most cities will be serene, free of weekday traffic jams as workers enjoy a Thursday that is free of normal routines.  Many commuters wish that the free-flowing driving could last all year long. Traffic congestion wastes drivers’ time and gasoline, pollutes, reduces employment, and pushes businesses and shoppers away from cities.

There is hope. New global positioning system technology and congestion pricing can reduce traffic jams.  In mid-January, 10,000 transportation professionals, including people from the incoming Obama administration, will convene in Washington D.C. at meetings of the Transportation Research Board, part of the National Academy of Sciences, to discuss solutions.

Electric cars will not cure environmental woes

diana-furchtgott-roth_great_debate

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

The world is falling in love with plug-in hybrids and all-electric cars. President-elect Obama wants to put 1 million on the road by 2015. GM features them, particularly the Chevy Volt, in its new business plan for a debut in 2010. The EU wants them to shrink greenhouse gas emissions in 2020 by 20% from 1990 levels. This week the Chinese auto company BYD began selling the world’s first commercially-available plug-in hybrid sedan.

No matter that these cars are not widely available; that they are priced far above traditional models; that many have a short range, making them useful only for local trips; that batteries may be prone to catching fire; and that many motorists park on the street, where charging is impractical.

The right way to spend billions on infrastructure

diana-furchtgott-roth1– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The opinions expressed are her own. —

With President-elect Obama and the Democratic congressional leadership both viewing infrastructure spending as a magic stimulus that will end the recession, such spending will happen.  But will Congress write a sensible, well-targeted bill—or will timeliness and efficiency lose out to old-time politics?

Obama declared in his December 6 radio address that he wants “the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.”  Moreover, House Transportation and Infrastructure Committee Chairman James Oberstar, Democrat of Minnesota, has outlined plans to spend $45 billion on transportation projects alone, never mind the schools, computers, and other public facilities listed hopefully by Obama.

Bail out the car buyers

diana-furchtgott-roth1– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

As disastrous auto sales figures for November were reported this week, the Big Three auto companies–GM, Ford, and Chrysler–told Congress that they want government loans to keep from going bankrupt.

The pleas of General Motors and Chrysler were the most urgent.  Ford allowed that its cash position was better and that it might get through 2009 without tapping the federal line of credit it seeks.

Fix immigration by next Thanksgiving

diana-furchtgott-roth1– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

The first Thanksgiving festival was celebrated in 1621 in Massachusetts by the Pilgrims, immigrants to America, out of gratitude for a plentiful harvest.

As we sit around our Thanksgiving tables this Thursday, almost all of us immigrants or their descendants, we’re reminded that one of President-elect Obama’s most important challenges will be to mend our broken immigration policy.

Obama’s family-friendly agenda will hurt job growth

diana-furchtgott-roth–Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own.–

Everyone knows Marisa. She may be your next door neighbor or former colleague. She’s unemployed and looking for a job, or just wants to change jobs. She’s highly motivated, well-credentialed, and experienced.

But these are tough times. The unemployment rate, now 6.5%, will likely rise further as plunging retail sales lead to cutbacks in production and more layoffs. The economy is contracting now and is unlikely to resume expanding before summer 2009—if then.

The U.S. won’t stomach a new Bretton Woods

diana-furchtgott-roth1 — Diana Furchtgott-Roth,former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

Leaders of the Group of 20 countries meeting in Washington on Nov. 15 are hoping that America’s role in the global financial crisis will shame President George W. Bush, or maybe President-elect Barack Obama, into supporting greater international financial regulation, diminishing America’s role in international financial institutions.

But America is unlikely to give up control over its financial sector, certainly not under Bush, and probably not even under the internationally-popular Obama.

After victory, a reality check for Obama

diana-furchtgott-roth– Diana Furchtgott-Roth, a former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. The opinions expressed are her own. —

By Diana Furchtgott-Roth

Pity President-elect Barack Obama. Today, only three days after his historic victory as the first African-American elected president, the Labor Department announced that the economy lost 240,000 jobs from payrolls in October and that the unemployment rate rose to 6.5%. This underscores the difficulties he faces in raising taxes on “the rich” to fund new spending.

Obama must recognize that his campaign promises are impossible to implement without making the economy sicker. The economy is weak and getting weaker, probably contracting now at an annual rate of 3-4 percent.

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