Economic Effects of Stimulus and Debt

The Economic Consequencesof Government Stimulus

and Run Away Debt

William Beach

The Heritage Foundation

June, 2010

Jobs Plan of Congress Not Working

Obama Jobs Plan Went in the Wrong Direction

A Better Way:Lower Taxes and Less Regulation

–Reduce business taxes from 35 to 25 percent

– Simplify tax rates to three: 10, 15, and 25

–Reduce the death tax rate to 15 percent & $5 million exemption per person

–Make the tax relief of 2001 and 2003 permanent

–Repeal onerous regulations, like the Sarbanes-Oxley law

The Two Stimulus PlansWhich is Better for the Economy?

What Did We Get for All of These Billions in Stimulus?

More Dependence on GovernmentAnd Much More Debt

The Obligations of the Debt Paying Generation

• Total debt expected to grow from $7.5 trillion in 2009 to over $15 trillion by 2020.

– That is from 53% of GDP in 2008 to 67% of GDP in 2019. In 2008, debt equaled 41% of GDP

• Tsunami of debt from Social Security, Medicare and Medicaid will push total debt to 320% of GDP in 2050 and 750% in 2083

How Much is One Trillion Dollars?

• 1,000 billion

• $1,000,000,000,000 (that’s 12 zeros)

• At $42 million per year, LaBron James would need to work 23,809 years.

• Average life in the U.S. lasts 2.4 billion seconds

• One billion seconds ago = 1977

• One trillion seconds ago = 30,870 BC

• One trillion seconds from now = 34,890 AD

Debt Always has to be Paid

• Payment can be made by

–Raising taxes

–Lowering future spending

–Inflation or dollar devaluation (debt repricing)

–Debt repudiation

Who Will Save the United States?

• International Monetary Fund says US total government debt will equal 100% of GDP in 2015.

• IMF advised the US on May 14, 2010 to cut its structural deficit by 12% of GDP over next 5 years: that’s $342 billion per year.

• US has saved country after country in the last few years. Who will save us?

Congress Already Discussing Tax Hikes

• Value Added Tax

– Could add 8 to 15 percent to the price of retail goods and services.

– You pay the tax; businesses pass it along to you.

• Oil exploration taxes

• New taxes on health care, financial transactions, banking activity, and so on.

Let’s Get Personal:Repaying this Debt

Will Reduce the Quality of Your Life

•The “economic stimulus” debt alone will cost you $280 per month for the rest of your life = buy and trash an iPhone a month.•Tax rates will double on you and triple on your children. That means:

•First home purchase later in life.•Marriage later in life and later to start to families.•Longer time to pay off student loan debts.•Slower earnings growth over your lifetime.•Less savings for education, health care, and retirement.•Smaller wealth transfers to your children and grandchildren.