Uncertainty Mounting on the Economy

Ray Keating

These days, the more government says it is going to do to help the economy, the more ecnomic uncertainty mounts.

That's because the policy agenda being pushed by Congress and President Barack Obama's administration is not going to be an economic plus. Quite the contrary, it promises to cause far more problems.

Before they settled on $787 billion, the House and Senate were wrestling over the size of the economic stimulus package. They were debating whether it should amount to $790 billion, $800 billion or $838 billion, as well as the division between spending and tax cuts.

In the meantime, Treasury Secretary, Timothy Geithner on Tuesday (February 10) put forth an outline plan to sure up the nation's financial system. The only thing that was clear from this proposal was the hundreds of billions of additional taxpayer dollars would be placed at risk. How and exactly how much were vague at best.

More government spending? More government bailouts? Are these really the right ideas to get the economy recharged, especially when one understands that private entrepreneurs, businesses and investors will be the source of real economic recovery - not the government?

Is there anything in the stimulus package, for example, that would help entrepreneurship and small business? Well, there is a one-year extension on expanded expensing of capital expenditures for smaller firms and the extension of bonus depreciation through 2010. A one-year extension on the AMT patch made it to the final bill, to stop that costly, parallel tax system from ensnaring millions more. Some smaller firms (under $15 million in gross revenues) will benefit from a five-year loss carryback provision. And, businesses with under $500,000 in revenues will be allowed to pay 90 percent of estimated tax payments in 2009. But given their limited and temporary status, they will hav elimited positive effects on business and the economy.

And as The Wall Street Journal asked on February 10, where is President Obama's elimination of capital gains taxes for small businesses, as he proposed on the campaign trail? That would indicate at least some recognition of the true source of economic growth. But it is not to be found.

And then there are absolute negatives in the mix for small and mid-size firms, suchas higher COBRA costs, expanded prevailing wage regulations on stimulus projects, and sneaky requirements.

In the end, it pays to keep in mind what Senator Mitch McConnell said, as quoted in the February 11 USA Today: "This paints a picture of the Europeanization of America. I do think it's important to focus on the larger question of, 'Where are we going to leave the country in two years if we take all of these steps?'"

That's a critical question.

Meanwhile, President Obama continued talking down the economy in Florida on February 10, as reported byt eh Los Angeles Times: "The Americans I've met understand that even with this plan, our recovery will likely be measured in years, not weeks or months - but what they don't have patience for is more waiting on folsk in Washington to get this done."

The February 11 USA Today story asserted that this is "the worst economic crisis since the Great Depression."

In reality, there is no reason to believe that this will sink into the worst economy since the Great Despression, nor that our economic recovery will take years - that is, other than the problems government caused getting us into this mess, and the groundwork policymakers are laying for additional problems now and into the future. THis could turn out to be the most dismal economy in over seventy years and a slog emerging. If so, misguided politicians will, once again, be at fault.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Copyright 2009. All Rights Reserved.

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