“Porkulus” Was a Travesty, but “Cash for Clunkers” is Kosher

CashForClunkersI wasn’t aware of the “Cash for Clunkers” program until today, when they started talking about ending it prematurely because it was running out of money.  I’m not in a position to take advantage of the program  personally, but I’m glad that it looks like Congress will add more money to it.  I think the concept is brilliant — if the rest of the bloated and dishonest “stimulus” legislation had been more like this, I’d stop calling it the Porkulus bill.

Many conservatives argue that there should not have been a stimulus bill at all.  I tend to agree, and I certainly respect the principles on which that argument is made.  However, the simple political reality is that there was zero chance that the government would refrain from using stimulus spending in an attempt to revitalize the economy.

But while I think any stimulus spending may have been misguided, I’d be done talking about it if the legislation had been a pure stimulus package.  The thing I find infuriating is the uncontestable fact that much of the money will not be spent until 2011 or later.  It is fundamentally dishonest to pretend that the purpose of such spending is to stimulate the economy now.

That’s why I love the Cash for Clunkers program.  People commit to spending money right now, then they wait for the rebate.  It gives a boost to the auto industry (and remember, you and I now OWN a significant chunk of that industry).  It gets older, less efficient vehicles off the road in favor of more fuel-efficient models.  Perhaps best of all, it lets individual citizens decide whether they personally want to participate in the program. Win, win, win, win.

Of course, some conservatives see it differently.  On Planet Gore, National Review Online’s anti-environmentalist blog, Henry Payne weighs in:

Worse, Democratic demands that the guzzlers be permanently shredded means that already hurting used-car and -parts businesses will suffer. By insisting that the cars not only be crushed — but also that their engines be disabled — Congress’s decree will penalize the industry at time when a dozen U.S. parts suppliers have filed for bankruptcy this year. […]

The victims will be lower-income Americans who typically buy only used parts and vehicles. “Now you’re removing cars people could afford, and they’re not available anymore,” says Norm Wright, a Denver recycler. “There will be fewer cars to pull from, so the price of parts will go up.

Pish and tosh.  This strikes me as Obama Derangement Syndrome, or maybe Government Derangement Syndrome — the idea that any initiative by one’s political “enemies” must be not just opposed, but also attacked and belittled.  Once it becomes inevitable that there is going to be an attempt to stimulate through government spending, Cash for Clunkers is about as good as it gets.

The original program included  “only” $1 billion for rebates.  Now the House has voted to add $2 billion.  Those amounts alone have no meaningful stimulative effect.  But surely other sensible stimulative initiatives could have been devised.

At the risk of sounding like a Republican,  the most effective way to stimulate the economy would have been… wait for it… a tax cut.  No, not a “tax cut for the rich” — a tax cut aimed directly at middle-class and lower-middle-class wage earners and business owners.  I’m talking about cutting Social Security taxes — the most regressive form of taxation there is.

I don’t recall where I first heard this idea — probably one of the political podcasts I listen to on the treadmill.  But the more I think through the implications, the more I like the concept.  The Social Security portion of FICA — currently 6.2% on the first $106,800 of annual wages earned — is more regressive even than the sales tax, because there’s no cap on the sales tax.

slow_d16It’s too late now — the Democrats already rammed through their Christmas-tree porkulus package, and the president put the lie to the idea that it had to be passed now now now now now by waiting days to sign it.  But if the main point is to pump money into the economy, why not temporarily reduce that tax by, say, 1 point?  Sure that creates a greater Social Security deficit in the future… but Porkulus increases a different deficit, and it’s not as efficient in creating short-term spending.

A Social Security tax cut could have become effective as quickly as employers could adjust their payroll calculations.  Because of the very nature of the tax, it benefits lower-income people more than it benefits the “rich.”  If the only way to get Democratic support to pass such a bill were to make sure none of the filthy, immoral, $106,801-earning Plutocrats got a single dime of benefit, you could even phase out the temporary tax cut at higher income levels.  Of course, you could also couple such a tax cut with a much smaller, better designed spending program.

Would some people undermine the stimulation by saving the extra bucks rather than spending them?  Sure.  But a LOT of the money would get spent… and the part that is “wasted” by being saved would at least be going into the savings accounts of individuals, who could make their own eventual decisions on how to spend it.

I’m not recommending this now — I’m opposed with every fiber of my being to any additional “stimulus” effort before what we’ve already done has a chance to filter through the economy.

But am I missing something?  Why would this not have been a better idea?

(Illustration by the Web Goddess)

14 thoughts on ““Porkulus” Was a Travesty, but “Cash for Clunkers” is Kosher

  1. I am against the program personally. If people want to buy a new car let them… just don't ask me to help pay for it! As long as there have been two people around buyers and sellers have figured it out.

  2. I am in agreement with you on this one, it encourages actions that help the economy and people get into more effecient vehicles which helps their bottom line, which increases their disposable icnome which helps the overall economy.

  3. if this is a good idea for cars, then it's a good idea of homes. So if i sell my 1970 tri-level … will the government give my buyer $20-40,000 in cash to tear it down so we can reduce supply of homes in the market? See how goofy that sounds when it's applied to another market?

  4. My point is only that IF there is going to be a stimulus, Cash for Clunkers is particularly well designed. I have no quarrel with anyone who argues that there should not have been a stimulus in the first place.

    • The money would have been better spent on tax cuts I think. I am forced to pay my money for other people to buy cars. I'd rather it be spent so we pay less taxes.

  5. Only $1billon out of $4billon is set aside for the project and now the program, along with car dealers, suffer a lot. And there are so much trouble for the car dealers to be refunded, this cash flow problem may slow them down in implementing the program.

  6. My take on this. We Conservatives lost an election. This is a liberal plan, but it is at least a plan that achieves its stated objective. Congratulations to Obama on that. In the face of all of the failed ideas and exorbitant spending of this administration, it is about time we got something that at least does what it was supposed to do.

  7. Pingback: Kudlow Supports A.T.I.N. on Clunkers | All That Is Necessary...

  8. Steve, well put.

    eronne, I've seen dealers grumbling about the paperwork, but I don't see it slowing down anything. If I understand correctly, the sale takes place immediately and the rebate follows. I presume any dealer who can't be bothered to fill out the required forms could decline to participate.

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