U.S. economy pains may pay off later


It started with foreclosures, impacted the financial markets, spread to the auto industry and the result is a cry to help them all and then some.

"The unemployment rates have gone up. People are losing their homes. Their lives are being shattered. So we need to bite the bullet and put as much as we can into an economic stimulus initiative," said Representative Barbara Lee (D) of Oakland.

However, biting the bullet now could lead to a bigger bite for taxpayers later.

"These things take time to sort out. What seems to me we want to do in this country with 24/7 news coverage, blogs, web pages and everything else is, get it done today. And I don't know that you can get it done today no matter what you do," said Alvin Rabushka, Ph.D., from the Hoover Institution.

Dr. Rabushka is a senior fellow and well known tax expert at the Hoover Institution. He says the easy part is throwing money at the crisis. It requires selling U.S. treasuries to raise money, and foreigners are willing to lend us money. The hard part is around the corner.

"What are we going to do down the road with regard to these huge growing programs, and the answer obviously is we're going to cut them, tax more, postpone retirement, cover fewer medical bills. I don't see any other way out of that," said Dr. Rabushka.

Dr. Rabushka points out Californians may feel a bigger bite if a plan by President-elect Obama advances to raise social security taxes.

"They have the high-income earners that will be most hit by the changes in social security tax. They would be most hit by having to go back and pay the top tax rates of 36 and 39 percent," said Dr. Rabushka.

And even the governor's 1.5 percent temporary sales tax increase is under fire by taking money away from consumers.

"You will buy less of something. Whatever you buy less of means you need fewer people to make it, fewer people sell it, fewer people to truck it around and distribute it. At the margin, some trucker may lose his job. Some retail clerk may lose his job. Some mom and pop store may close," said Dr. Rabushka.

Consequences to consider as government leaders try to address the spreading crisis.

You can read Dr. Rabushka's blog here.

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