It should be said that the stimulus really does have some wasteful provisions. Take the $11.5 billion in tax incentives for automobile purchases. As Ryan Avent argues, "the attempt to support automobile purchases is regressive -- if you're comfortable enough to buy a new car in these economic times, you probably aren't among the most in need of scarce government assistance. It will also fare poorly as stimulus. It's unclear how many sales might be generated by the plan or whether the number will be large enough to increase production or will merely serve to draw down the massive automobile inventory overhang already sitting on lots." It's also dangerous as a long-term measure: It accelerates the purchase of cars with no requirements for fuel efficiency. Limiting the assistance to extremely efficient automobiles would have at least pushed the industry in the right direction. Using a cash-for-clunkers approach -- where the credit is for those who turn in old, inefficient cars and purchase new, highly efficient vehicles -- would have ensured the credit proved both progressive and environmentally sane. As it is, the $11.5 billion -- more than transit receives in the whole bill -- will go to subsidize the well-off and worsen our carbon problem. It's two counterproductive policies for the price of one! Similarly inane is the house flipping subsidy proposed by Senator Isakson and passed by the Senate. Isakson's amendment would give a tax cut equaling $15,000 or 10% of the home's value (whichever is lower) to anyone who purchases a new home. As Dean Baker writes, "it's hard to see why tens of millions of people wouldn't figure out a way to buy a house from a friend or relative and get their $15k." Two rich brothers with smart accountants could purchase each other's homes and make $15,000 each. Two years later, they could sell the homes back to each other at the original prices. Oh, and the tax cut isn't refundable, meaning that if you don't have $15,000 in tax liability -- and most don't; the average American paid $9,377 in income taxes in 2004 -- you don't get the full value of the deduction. So not only is it ripe to be gamed, it's also wildly regressive.
