As the government tries to dig the economy out of recession, the Administration is beginning to see that some of its stimulus packages are beginning to compete with one another. Congress and the President have been careful not to give taxpayers credits for tuition at private schools as well as public ones. Parents have no incentive to do unintentional economic harm to the vast university systems established by the states.
There is also no evidence that renters are getting any special tax breaks that would make them less likely to buy homes rather than remaining in their apartments.
Some competition between programs, competition that helps stimulate one part of the economy while undermining another, is impossible to avoid with the hundreds of new projects, incentives, and tax credits that the Administration has built into a stimulus package based on new federal government spending and tax incentives.
One new program allows Americans who buy an electric scooter to get a 10% tax credit. Some states are also giving incentives for two-wheel transportation because they are attempting to keep gasoline demand low and air quality high.
Scooter demand has already begun to eat into car sales, and the government is probably in the process of making that worse. According to the AP, “Scooter sales reached their highest annual level ever last year at roughly 222,000, largely due to soaring gas prices, said Ty van Hooydonk, spokesman for the Motorcycle Industry Council. “ Some of the people who bought those scooters bought them in the place of a car.
The federal government will spend over $40 billion bailing out Detroit. That is the lowest possible number. If the Chrysler and GM (GM) restructurings do not work, it will be hard to simply close them. Taxpayers will be on the line for a second and perhaps third set of loans or equity investments in the US car industry.
Helping people buy scooters does not encourage people to buy cars. There are probably some consumers who will by one of each. But, that is not likely in a recession.
Congress is considering a bill that will give car buyers credits to turn in old, fuel inefficient cars. That should help auto sales, in theory. It makes the initial cost of buying a new car lower. That does not matter much if the consumer opts to own a scooter.
The scooter incentive may seem trivial, but the problem it exemplifies is not. Once the government gives consumers and businesses a reason to behave in one way rather than another, there are almost always unintended negative consequences.
Part of the government stimulus package includes capital for renovating secondary schools. There is not a single municipality in the country that will not take that money and put it to what would appear to be good use. Rebuilding and refurbishing schools creates jobs. It can also create situations in which schools which should be torn down continue to operate. In a town where the number of school-aged children is decreasing, it makes sense to avoid having too many schools because these facilities keep local property taxes high. Stimulus money may add jobs, but it may also lead to excess taxation.
The stimulus package contains almost $20 billion to be put toward programs that improve energy efficiency or create renewable energy sources. Geothermal energy is a renewable source, but, so far, it has not proven to be an energy alternative that has much practical application. There is some evidence, however, that wind energy is an excellent alternative to other sources of electricity generation, at least according to T. Boone Pickens. The federal government will probably give some level of support to geothermal and wind energy projects. It will also provide capital to ethanol and solar projects. It is not possible that all of these alternatives to fossil fuels are equally effective. In a system where stimulus spending is efficiency-blind, the best projects may not get the most money.
In 2010, if scooter sales continue to pressure auto sales and the government has to put another $100 billion into Detroit, someone will have blundered by supporting an industry that helps keep the air clean but puts tens of thousands of auto workers out of jobs.
Douglas A. McIntyre
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