Looking a Gift Horse in the Mouth

The old saw about not looking a gift horse in the mouth refers, of course to the Trojan Horse; and in analyzing the benefits of the $17 billion stimulus gift from the Feds, the reference is indeed apt. As EJ McMahon tells us: "The House of Representatives this week is expected to pass a federal stimulus package that could pump at least $17 billion of noncapital funding directly into New York's state and local government coffers over the next two years. But what Sen. Charles Schumer is touting as a "shot in the arm" for New York looks more like a sock in the face to the state's taxpayers."

Why's the money bad for us? EJ tells it like it is; pointing out how the largess only enables feckless pols to shuck and duck the hard budget decisions-postponing the inevitable until the situation simply deteriorates further: "The stimulus bills would temporarily offset Gov. Paterson's planned cuts in Albany's projected spending on education and Medicaid - the operative word here being "temporarily," since the extra cash is only for 2009 and 2010. As a result, the federal bailout will do painfully little to forestall the massive tax hikes now being cooked up in Albany and City Hall. Nor will it do much to "stimulate" New York's economy (unless, like Schumer and too many other leading New York politicians, you pretend public-sector unions and Medicaid providers are engines of economic growth)."

The delay of the inevitable, however, will prove deadly for New York's long term stability: "By delaying any serious reform or restructuring of New York's most costly programs, the "stimulus" would actually make the state's long-term financial outlook even worse. If the current versions of the stimulus bills become law, bond-raters might as well downgrade New York's paper right away - because when two years are up, the state budget hole will probably be as big as ever, and the economic outlook may not be much brighter."

And unfortunately, once the package is dissected, all of the federal money will not do much to mitigate any of the governor's proposed tax increases: "When all's said and done, a small amount of the state stimulus, perhaps as much as $1.5 billion over two years, would come without strings tightly attached. That's only enough to undo a small portion of the $8 billion in tax hikes that Paterson has proposed for the same period. The stimulus bills seem likely to breeze through the House, but Senate action will take a little longer. If Paterson really wants to avoid economically damaging tax hikes, he needs to join with other governors in insisting on greater flexibility in how states can use these funds."

Real economic relief for tax unhappy New Yorkers would be for the stimulus money to be used to keep any new taxes down; and, as McMahon points out, this is a good test for our new junior senator: "It's also a test for New York's new junior senator. In the House, Rep. Kirsten Gillibrand lined up with fiscally moderate "Blue Dog" Democrats (although her voting record on a key index of tax-and-spending issues was indistinguishable from ultraliberal Rep. Barney Frank's). This is Sen. Gillibrand's chance to stand up for a more financially responsible package and a better deal for New York taxpayers - even if it pits her against New York's senior senator."

Tax cuts, not hikes, are the key to economic growth-particularly for small businesses that are being beleaguered by taxes, fees and regulations. Yet Washington seems hell bent on subsidizing failing big businesses at the expense of their more entrepreneurial and smaller competitors. As Tristan Yates tells us:

"What should be done to help small business fuel an economic recovery? Clearly, we need Barney Frank to lead a House oversight committee, a $700B rescue program to buy failing small businesses, a progressive Small Business Czar — maybe Naomi Klein or Andrew Sullivan — and, of course, new carbon taxes to ensure that entrepreneurs living in polar regions don’t drown as the arctic ice melts. But if you’re a little skeptical of that approach, may I present another. Stop the planned tax hikes that disproportionately hit small businesses and their owners. Stop turning small businesses into tax collectors and social workers. And stop the bailouts — after all, new businesses can never succeed if their competitors are subsidized indefinitely."

Bottle bill expansion, soda taxes, real estate tax hikes-everything that's bad for economic growth is on the table; and now we have "free money" to spend for all kinds of unstimulating stuff. We're waiting for our elected officials to stand up for small business and economic growth-but we're not holding our breath.