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Wednesday, July 22, 2009

GOP Disgracefull Sabotaging of HC Plan: Bad economics=Bad politics

Appalled by the GOP smear of the HC proposal, espicially the 13-10 House Finance Comm. vote on absolute party lines shows GOP myopia or ingenuousness or both in ignoring the tie of the future of US business competitiveness to passage of HC proposal? We have estimated that the HC proposal will reduce the average cost of a car by $2500, that's about 14%. Use of less than precise numbers done here does not change the overall conclusion. Be my guest to demonstrate otherwise. Let's say that the cost savings for all industries is lower, say 10%, because they are less capital intensive on average than autos.Therefore, all industry could cut price 5% and increase margin 5%. If price elasticity is 1.5, that would roughly increase sales by 7.5%. Say aggregate sales are $7T, that's a sales increase of $525 B and a profit increase of about $79B (Sales X old margin of .10 plus added margin of .05) If the accelerator is .5, that's $263 B additional investment (525. X investment multiplier of 1.5) or about $394B. At one incremental job per added Bil $ of revenue, that's 525000 new jobs. Additional Federal taxes on the added $79B at an average corporate tax rate of 25% is $19.8B. Additional personal tax revenue is 525,000 new jobs at a conservative average income of $30000 per year is $7.5 Bil in added wages at an average personal income tax rate of 15% is $1.13B. $19.8+1.13 is about $21B in new taxes which would fund a substantial percentage of the cost of the HC plan. Therefore, the relatively small marginal cost of the HC plan net of new taxes generated would substantially improve U.S. business performance. By opposing the HC plan, the GOP and shown to be hypocritical (surprise) in their posturing as the party of business. Blue Dog Democrats are on the verge of falling into the same position if they don’t get the President’s message.

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