It never ceases to amaze me how the Federal Government can take a simple issue, and make it as complex as an eight layer cake. But if we take the time to do the math, we certainly spend a lot to stimulate a little.
First, it should be clear to everyone that in the end, it is you and I that spend our money that fuel the economy of this nation. Take away the individual earners and consumers and you have no reason for any of the rest of the system called the US Industrial complex to exist.
When we do the math(depending on which numbers you choose to use), we are spending via this Stimulus Plan a little less than $3000 per person to stimulate the economy. But borrowing money to spend it has never been a good thing. And in the end most of this money will be spent poorly, providing little return on the dollar for those that will have to pay it back at a later date.
If we want to restore confidence, if we want to restore faith, if we wanted to get money flowing once again, I suggest that we should have taken a different approach. Each individual assigned a Social Security Number should receive a $3500 lifetime tax credit to offset their Federal Income taxes for the years 2008 and beyond. This tax credit will exist until it has been fully used by each individual.
This plan leaves more money in the hands of those working now. It encourages people to work harder to earn more now to take advantage of the tax credit. This plan allows the individual to spend the money on what they need as they see fit rather than waiting for some sort of trickle around approach that will need to occur as the money flows from business back to the individual.
This plan is immediate. Workers can change their tax withholdings today. Tax filers could take the deduction from their 2008 Federal Income taxes today. No delay. No waiting to see if and when they receive a benefit. This immediate benefit will provide confidence to all of us.
Individuals who cannot take full advantage of the benefit in one year will have the ability to use the benefit over multiple years. We are all treated fairly in this manner.
This plan encourages individuals to seek work because they will earn income free of Federal Income taxes until they have used their credit. That is what stimulus should be.
This plan requires no Federal oversight that is not already in place. This plan is measurable as we will be able to see how much of this Stimulus is claimed each year via the Federal Income Tax filings. Best of all, this plan would have reduced the power of the Federal Government and placed a bit of it back into the hands of We, the People.
This plan also means that we will be "borrowing" from the future tax revenues of the Federal Government. Now they will have an incentive to get out of the way of business, something which they do not have today. But no additional money would have to be borrowed or printed for this plan to be put into effect today. We would just need to have the politicians control their spending as we accelerate our spending. I'd rather borrow from myself rather than the rest of the world.
Perhaps that is why we will never see a plan such as this.
What are your thoughts? Tell me what you think.
©2009 EJ Moosa, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Thursday, February 12, 2009
Last modified: Thursday, February 12, 2009
The views expressed in this article are those of EJ Moosa only and do not represent the views of Nolan Chart, LLC or its affiliates. EJ Moosa is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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Reader Comments:
Posted By: Walt Thiessen
Date: 2009-02-12 10:07:05
I'm in favor of returning tax dollars to taxpayers whenever possible. However, it won't solve the basic cause of the crisis...the Fed. Nor will it create any immediate recovery in spending, since right now people need to pay off credit cards and rebuild their savings. Again, I'm in favor of people paying off debts and rebuilding their savings, but don't expect any short-term improvement from such a plan, and don't expect any long-term improvement until the Fed is dealt with (preferably eliminated) the way it needs to be dealt with.
Posted By: EJ
Date: 2009-02-12 10:22:55
Walt,
It's rather safe to say that the Fed will not be dealt with nor eliminated in this administration(so that is at least four years).
Those people that are indeed strapped would have an immediate increase in cash flow. Paying credit cards supplies funds to the banking system which can then be reloaned. Some people will spend the extra money dining out, or shopping., or the movies . Whatever they do, there will be more spending at the local level, which will get cash moving. The more cash moving, the better the possiblity of recovering from this economic calamity.
I agree- the Fed has, along with Congress, created this problem. But the problem has been exacerbated by the public at large because they have heard how horrible everything is and are not spending an extra nickel on anything because they feel they may need it in the future.
Even if the Fed were eliminated today, if those that are earning do not feel confident enough to spend, our economy will decline.
The concept behind what I wrote was if we were going to spend $700 billion on a "stimulus" plan, this is how it should have been done.
Thanks for the feedback.
EJ
Posted By: Walt Thiessen
Date: 2009-02-12 10:24:53
EJ: while I support what you're trying to do (and I agree it's much better than the bailout plan), I don't think the record of last year's tax rebate supports your view. For the most part, people didn't spend it on going out to dinner, etc. The economy overall showed virtually no change as a result of it.
Posted By: EJ
Date: 2009-02-12 10:35:25
Walt,
When those funds were issued, we still had a positive GDP (2nd Qtr 2008). So I agree that at that time, it would not have provide much stimulus. Most of us thought it was a token gesture aimed at providing money to people who had not earned it. The rest of us got it by default, and it was phased out at higher incomes.
The stimulus then was also 1/6th of what I suggested.
Allowing a married couple that makes 45,000 a year to keep $6,000 more in earned income has to be stimulating. They would have to feel they have more than they otherwise have. This is a pay increase we know they are not getting in 2009.
I think everyone feels better keeping more of what they earn, and that effect also has a positive effect for us. Remember, the only way to benefit from what I have proposed is to earn it.
EJ
Posted By: popeyes motto
Date: 2009-02-13 18:24:07
The idea of taxpayers not having to pay taxes is a bad idea. How then do we begin to address the issue of 12 trillion dollars of federal debt soon to be 13 trillion with a tax payer base that becomes even less willing to pay taxes let alone increase the tax burden following a furlough. We get what we pay for and the corollary, we pay for what we get exists as an economic issue. The current household debt is more than 150,000 dollars and if paid off over thirty years including a modest interest fee of 4% yields a monthly tax level of nearly 1500 dollars MONTHLY. That represents a mortgage payment added to everyone's budget for another thirty years. This does not include ongoing budget items such as defense, transportation, regulatory duties, social services, et al. That is another $3000 dollars monthly that must be met. Reduce taxes and the debt increases along with the ability to gain financial stability. Our current troubles stem greatly from the idea that a reduction of taxes leads to a strong economic outlook. This theory is a negative sum fantasy. The trillions already borrowed and the trillions still to be borrowed will be paid off, by the devaluation of the dollar through the actions of the FED. There is no safe place for money now. Cash will devalue, rapidly as the debt climbs. The only good short term outcome of the continuing devaluation of the dollar is that contracts and mortgages written in yesterdays dollars will be more easily met when wages are inflated reflecting the loss of value of the currency. That's why the currency is being devalued so rapidly by the FED and for the insertion of nearly a trillion extra dollars into the economy to boost jobs cration. Future jobs will pay more, the taxes generated will pay for services and debt, and if the debt grows too large, then the value of the money will be devalued further so that more of it will be available to be taxed and pay off the debt. If the contracts and mortgages held by the financial institutions are not met, they will collapse. If they are met then the financial institutions will continue to exist and money will flow. More of it reflecting the loss of value of the currency. Money is relative. It's value is ever changing.