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 The attempt to forge an economic stimulus bill in the Senate goes on. The President is getting impatient and is pushing hard. Harry Reid and Mitch McConnell are giving constant press briefings. A group of “moderates” around Susan Collins of Maine and Ben Nelson of Nebraska are trying to forge a compromise that can garner 60 votes. Everyone agrees that we need to do something to help get the economy moving again. They just can’t agree on what that should be.
The Republicans are strong on tax cuts which have the benefit of delivering their effects fast. The Democrats are pushing spending programs that can have a multiplier effect and thus deliver more bang for the buck. We need both. Small businesses which are the primary driver of new job creation are being hit hard. U.S. corporate taxes are among the highest in the world. What many in Congress can’t seem to figure out is that taxes are just another operating expense for a business. The company doesn’t pay taxes, the people that purchase its products pay them.
On the other hand any stimulus bill should include some spending programs. The multiplier effect notes above is one reason but not the only one. We need to spend (read invest) more in infrastructure. At all levels of government spending on infrastructure, whether road repair locally or building a more efficient national electrical grid has been the poor step-child for far too long. In the normal course of events, politicians spend money on things that help them get votes. Unless a bridge collapsed last week, entitlements trump infrastructure every time a budgetary choice has to be made. So let’s take advantage of the current situation and include some important infrastructure spending in the stimulus.
There is one other approach to stimulating the economy that nobody has mentioned yet: regulatory change. Anyone in the retirement plan business knows that when there is a change in the law or regulations, you get busy. It may be helping sponsors bring their plans into compliance (witness all the activity in the 403(b) market over the past year) or adding new plan features such as automatic enrollment or target date funds. All of this acts to spur business activity. And I’m sure there are parallels in other industries. Instead, we have a 60 day hold on any regulatory changes so that the new administration can review them. Identifying regulatory changes that can generate business activity and putting them on a fast track approval process can add another multiplier effect into efforts to stimulate the economy.
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