Stimulus 2.0? Forget about it.

Bookmark and Share IB Editor Joseph Vanden Plas takes you inside his views on politics and its effects on business — from national initiatives to local irritants and inspirations. He encourages you to post a comment and be part of a dialogue. Watch for new posts weekly!

There is nothing more ridiculous than giving ammo to your political opponents, but national Democrats appear to be doing just that in suggesting a second stimulus bill.

Where do I begin? Not only is it an astonishing if unintentional admission that the first $787 billion stimulus bill, which became the American Reinvestment and Recovery Act, hasn’t worked, it’s going to be met with even more resistance from tea-partying Americans than the first one. Now that the full ramifications of the first bill is becoming clear — a $1.8 billion federal budget deficit! — Stimulus 2.0 has the makings of a trial balloon. Even some Democrats, most notably Senate Majority Leader Harry Reid of Nevada, have stuck a pin in it.

We’ve only spent about 10% of the stimulus money, which means more of it should have been frontloaded to begin with (the problem is here and now!). I would much rather the government look for pieces that can be fast tracked rather than engage in further spending excess, especially when I see millions being spent on ARRA signs around the country. Good for the sign companies perhaps, but not exactly the robust job creation we were promised.

The original ARRA had worthy pieces; given its incentives for small business, information technology, and alternative energy, it was not the total “crap sandwich” its opponents claimed. Unfortunately, it also contained too many political paybacks to Democratic Party interest groups that have nothing to do with job creation.

Rather than ratchet up federal spending to even more ungodly heights, how about putting even more money back into people’s pockets than the first bill did? Yes, more tax rate cuts for the great middle class, enough to get them back into the stores and restaurants and back to being the drivers of the economy that American consumers are when things are humming.

These tax rate cuts do not put a permanent hole in government coffers; they stimulate the kind of economic growth that leads to higher revenues. It’s pretty simple really: a growing economy creates more businesses and more jobs and therefore more taxpayers feeding revenue to all levels of government — even at lower tax rates.

It’s not easy to explain the magic of tax rate cuts (notice that I didn’t say tax cuts). When they work their way through the economy, stimulating economic growth, they result in more revenue rather than less. That’s because you have to think of it as an equation: The tax rate multiplied by income equals taxes paid. When the rate is lowered and the economy expands, incomes typically rise. Ask yourself, who pays more taxes — a guy making $1 million paying at the 39% rate, or the one making $2 million paying at the 36% rate?

I’ll let you do the math, but the scale of the above equation gets to the thorniest issue regarding tax rate cuts… whether they should be applied to the wealthiest Americans. At the moment, I would say no.

Given the contributions of loopy mortgage programs (created by members of the wealthy class) to this economic crisis, I would not cut their federal tax rates further. In fact, I would increase them back to where President Clinton had them, roughly 39.6%, to help pay for health care reform that can help small businesses more affordably provide insurance to their workers.

No, I think the great American middle class leads us out of this mess with more purchasing power made possible by tax cuts… er, tax rate cuts.