The "Tax Rebate", The Chewing Gum Fix or The Christmas Tree?
Which is the correct answer for our current economic woes? The correct answer is "None of the above. by rtbohan
(libertarian)
Friday, February 1, 2008
President George W. Bush has proposed what he calls a tax rebate to improve the American economy. In proposing the mailing of checks to the tax payers, he stressed that the money was not supposed to be used to pay overdue bills or to save. It was intended to be spent immediately to bring the economy back to a healthy state. At the same time that this shot of short term inflation was being offered the country, the Federal Reserve stepped in and lowered the prime rate of interest again.
Of course the Bush proposal has two basic faults. The first is that it is not a tax rebate at all. It is simply a sort of pay day loan to the tax payers. Only someone who takes automobile commercials seriously thinks this is a true rebate, The second is that the government cannot tell the people what to do with their money. Some will use it to pay debts, some will spend it, and some will use it to get futher into debt.
For this to be a true rebate, the government would have to tell the people that it collected more money than it needs and refund it. This could be done with either the taxes collected in 2006 or the taxes collected in 2007. To be a genuine rebate,of course, the government would have to cut spending for this year or next year by enough to cover the checks it is writing. That is not going to happen. So the government is in fact borrowing the money for this supposed rebate. This will further weaken the dollar, which will further increase the price of what we import.
The government, at least so far, cannot tell the people they must spend money and spend it on new purchases. If this is the government's intent, it might have been wiser to use scrip with an expiration date. "This note is legal tender for new purchases until April 15" might work. But not very well, because as the notes got older the recipients would begin to discount them.
The flaw in the President's plan is that it is based on the premise that the basic economy is strong and that government management of the economy is keeping it sound. If this were true, there would be no need for a jump start. But it is not. If it were, there would be no need for the flawed recovery plan.
But if we grant the President's point it might at least be said that he followed the logic of his position. The plan could be called a tax rebate because it is directed toward taxpayers. The plan has a reasonable cap ont the level of income at which taxpayers are most likely to spend the money rather than save it, and it does not include non-taxpayers of the government as direct benegiciaries. It was a plan which, if it would not succeed, limited the damage that might be done.
But when the plan got to the House of Representatives, the few points on which the plan might be acceptable were lost.
The Democrats in the House of Representatives at least stripped the inflation plan of its disguise as a tax rebate. By extending the rebates to working people who were earning too little to be liable for taxes, they certainly got the money to people who are likely to spend all of the "rebate" just to provide the necessities of life. But they also raised the income cap on the rebates so that more of the money is going to those who are likely to save it. They also added, in effect, a tax rebate for businesses. The overall cost of the program in terms of debt goes up, and the individual taxpayers get less.
Speaker Nancy Pelosi said that she "knows" the stimulus plan compromise will work. But just in case it doesn't, the plan should provide for an extension of unemployment benefits for the coming recession and help for the mortgage crisis. This is an admission that government management of the economy has failed and needs a complete overhaul. But the Democrats, by an overhaul, mean more money for the government and more micromanagement of business and indivuals. The House and the President had compromised. Now the plan was not just a temporary release of money paid to the government but was plainly a massive jolt of inflation to revive the economy. Rathern than a reform os the "economic management" of the economy it had become a wad of chewing gum to save a sinking ship.
When the compromise reached the Senate, the Democrats decided that if the President and the House were going to try to bribe voters with the tax rebate/fix, why not provide a little something for everyone, including both old and new government programs. The Democrats proposed adding extra benefits for the elderly and the veterans. Note that this is "benefits" not rebates, meaning more for government departments already doing a bad job. They wanted more heating subsidies for low income families, a government program to provide mortgage counselling, increased food stamps, and increased tax CREDITS for alternate energy. In other words a little something for everyone, a massive increase in the debt and nothing at all toward resolving basic problems
President Bush has already said that, while he was willing to make serious changes in his proposal in order to get the program passed, he would not accept any attempt to turn it into a "Christmas Tree" with goodies for everyone. This did not stop the Democrats from crafting a Christmas tree. What stopped the Senate Democrats from adopting it was the Democrats in the House.
The House leadership announced that the Senate version of the package, while it would be agreeable to them, would fall sixty votes short of a majority in the House. The leadership of the Senate then put off consideration of the bill until next week. Whether this time will be used to try to convince House members to accept the Senate version or to convince Democrats in the Senate to accept the compromise as it was sent to the Senate by the House is not clear. In either case there will be some delay in passage, and some delay in getting any more cash into the economy.
If the Senate does pass its current proposal and the House rejects it, the two versions of the bill would go to a joint committee to try to find something which could pass both Houses. This would cause further delay. If what emerges appears too much a Democratic election poster, the President might well veto it.
In that case, "None of the above" might be the government's answer.
That might not be a bad thing.
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