Wednesday, February 11, 2009

Tax Cuts: Not the Problem

Okay. I have an issue with the ongoing implication by the president that it was tax cuts that got us “where we are today.” Here’s what he said in his weekly address over the weekend:

“Let's be clear: We can't expect relief from the tired old theories that, in eight short years, doubled the national debt, threw our economy into a tailspin, and led us into this mess in the first place. We can't rely on a losing formula that offers only tax cuts as the answer to all our problems…"

In contrast, I’ll just offer what I think is a better explanation of “how we got here” from the president’s own Treasury secretary, Tim Geithner, in his speech yesterday..

“I want to explain how we got here. The causes of the crisis are many and complex. They accumulated over time, and will take time to resolve.Governments and central banks around the world pursued policies that, with the benefit of hindsight, caused a huge global boom in credit, pushing up housing prices and financial markets to levels that defied gravity.

Investors and banks took risks they did not understand. Individuals, businesses, and governments borrowed beyond their means. The rewards that went to financial executives departed from any realistic appreciation of risk.

There were systematic failures in the checks and balances in the system, by Boards of Directors, by credit rating agencies, and by government regulators. Our financial system operated with large gaps in meaningful oversight, and without sufficient constraints to limit risk. Even institutions that were overseen by our complicated, overlapping system of multiple regulators put themselves in a position of extreme vulnerability.

These failures helped lay the foundation for the worst economic crisis in generations.

When the crisis began, governments around the world were too slow to act... When action came, it was late and inadequate. Policy was always behind the curve, always chasing the escalating crisis. As the crisis intensified and more dramatic government action was required, the emergency actions meant to provide confidence and reassurance too often added to public anxiety and to investor uncertainty.

The dramatic failure or near-failure of some of the world's largest financial institutions, and the lack of clear criteria and conditions applied to government interventions caused investors to pull back from taking risk.”

This is complicated, yes, but more accurate and therefore more responsible than the cheap-shot implication that tax cuts caused the current recession.

I think that Geithner stayed away from the Obama implication that tax cuts are to blame because he knows that our current situation has nothing to do with tax cuts – because tax cuts aren’t bad. They are good. They help stimulate the economy, especially when they are given to job creators like small businesses!

I give Geithner credit for mentioning small business several times in his speech, too. I’m glad they are being remembered when it comes to access to credit.

See this link for more specifics (i.e. a payroll tax holiday and increased expensing) on how to help the economy by helping small business.

Submitted by ASO member: Jean Card

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