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Trivia Tidbit of the Day: Part 522 -- Conservative Stimulus Alternatives.

We Can't Simply Be Against Bailouts, We Must Have Our Own Good Ideas As Well-

Recent history provides an important lesson for politicians on how to stimulate the economy. In 2004, America tried out a very short-term experiment. We drastically lowered the corporate tax on repatriated profits (money made overseas and brought back to the United States for reinvestment or shareholder disbursement) from 35% to 5.25%. Because conservative Republicans were only marginally in charge of government at the time, the change was VERY temporary.

We've discussed the results of this temporary change before, in a post in November of 2006. Essentially, it encouraged hundreds of billions of dollars to flow back into the United States.

And it went toward good and productive purposes:

In order to motivate businesses to bring this money back to the U.S., the new administration and Congress should consider legislation similar to a bipartisan 2004 law, The American Jobs Creation Act. This law incentivized U.S. businesses to bring $360 billion of foreign subsidiary earnings back into the U.S. at a reduced corporate tax rate of 5.25% for one year. A survey of several hundred of these companies found that they used, on average, 25% of those funds for U.S. capital investment, 23% for hiring and training of U.S. employees, 14% for U.S.-based R&D, and 13% for U.S. debt reduction.

But then it went away.

Instead of spending trillions on top of trillions on permanent expansions of government, why not try this out.

It will inject hundreds of billions of dollars into the U.S. economy over the next few years:

Temporarily reinstating the dividends-received-deduction for repatriated foreign subsidiary earnings leads to significantly higher corporate cash flow, increased capital expenditures including R&D, improved business financial conditions, more jobs at nonfinancial corporations and at financial institutions, and a significant increase in real economic activity.

Any increase of inflation is negligible, 0.1 percentage points, but there is a sizeable decline in the unemployment rate, although with lags, of 0.5 percentage points.

Two major problems of the current situation are addressed: some relief to business in a credit- and liquidity-constrained environment that is holding back business spending and contributing to a rise of unemployment. The improvement in business financial conditions sets the stage for more hiring later on by enhancing the liquidity and financial position of nonfinancial corporations. Thus, both current problems of tight credit and jobs are helped by the program.

So, this is one alternative. We Republicans have lots of alternatives. Frankly, doing nothing would probably be better than kicking this crisis' can down the road a bit. If we have to "DO SOMETHING!!!!!", we should explore ways to jump-start our economy through pro-growth policies.

Previous Trivia Tidbit: Texas Created Jobs In 2008.

Posted by Will Franklin · 28 January 2009 02:37 PM

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