The so-called "economic stimulus" package being considered by Congress continues to grow.  President Obama and Congressional leaders are talking of spending between $750 billion and perhaps as much as $1 trillion in new government programs and "targeted" tax cuts.  Among the items being considered for funding in the name of economic recovery are programs for birth control, National Endowment for the Arts, roads and bridges, "green" technology, power grid upgrades, beach restoration, colleges and universities, state governments, unemployment benefit extensions, and the list goes on.  Supposedly, this government spending will jump start the economy through spending other peoples' money.  Of course, the spending will have to be financed by borrowing, so the spending is ultimately pushed down the line to future generations.  While some tax cuts have been added to the package in the name of gaining bipartisan support (usually a scary thought, as I discuss here), ultimately the "stimulus" is all classic Keynesian, demand-side government intervention.  Of course, government spending takes time to get from the approval stage to the startup stage, meaning that construction and other projects, even if there is an economic jolt to be provided.  And does such government spending really spur long-term growth?  History doesn't seem to suggest that it does.

But if the government is going to spend three-quarters of a trillion dollars, why not provide an instant jolt to the economy while setting up long-term growth?  According to estimates pulled from the IRS and The Tax Policy Center, the government will collect approximately $1.22 trillion dollars in individual income taxes and approximately $350 billion in corporate income taxes this year.  This means that for half the price of the spending in the "stimulus" plan, or even for roughly the same amount as the supposedly "pro-business" tax cuts being considered now by Congress, the government could just cut out the corporate tax altogether — an across-the-board zeroing out.  Want to save some money?  Just cut the corporate rate in half then, and assuming an $800 billion dollar total package you could still cut personal income taxes by 50%.  To speed up the infusion of cash into the economy, the IRS could instantly change the withholding formulas, meaning that workers receiving paychecks would see a raise on their very next check.  Want to be more parsimonious?  Again, simple:  reduce corporate taxes by 33% and personal income taxes by 33% for a total "stimulus" of around $500 billion.

Perhaps more important than the instant cash infusion would be the effect on future economic activity.  Companies paying less money to the government would have more money to spend on investing in new equipment, hiring new workers, or even paying more dividends to shareholders (giving them more money to save or invest in turn, or making retirement accounts more profitable).  Such a move would most likely be a welcome sign to the financial markets, meaning upticks in stocks and more liquidity in the credit markets.  Moreover, the lower tax burden on businesses would improve US competitiveness, providing incentives for companies to create jobs and invest here.

Best of all from an economic standpoint, such a move could be enshrined as permanent policy, rather than just a short-term spending spree.  People more confident in what the future holds are more likely to make larger purchases, like houses and cars.  But there's an advantage beyond simple economics:  allowing people to keep more of their own money to spend as they please results in a net increase in individual liberty as well, and in a better standard of living for individuals and families, while reducing the power and influence of government.

Government action that strengthens individual liberty, limits government, stimulates the economy, and reduces the incentive for corruption:  how's that for "stimulus"!