I posit that Congress finally did something correctly. Economically speaking, perhaps it’s a bit dumb, but they actually worked together, compromised, targeted the correct part of their constituencies for this tax rebate, and worked out a tenable solution. Their package, plus Bernankie’s (sp?) interest cuts staved off what could have been a hard landing into recession and potentially a huge stock sell off and world crisis. At least for now.
I know there is a thread about the economic side of this, but I want to discuss the socio-political feasibility of this plan, and what seems like real compromise in Congress (vs gutlessness and blackmail) for the first time in years.
This is exactly why I love gridlock. Whenever Congress comes together it’s usually to enact something ridiculous. This “stimulus” package will do nothing to help the economy. It’s merely a way for Congress and the President to look like they are “doing something” about a recession that doesn’t even exist. And the public and press will hail it as the way Congress should work.
As a total economics noob who gets all his info from talking heads on the news and NPR, isn’t that Congress did something at all useful? As I’ve understood it, the consumers’ loss of confidence is often a self-fulfilling prophecy. I think the economy is tanking, so I spend less, so Joe’s TV Emporium sells less, so they let a few people go who now don’t have a job and can’t spend, so . . . and so on.
I know it’s not as simple as that. I remember around 1975 or so and President Ford’s ineffectual attempts at stimulating the economy (anybody remember his shilling of the"Wip Inflation Now" buttons? Truly embarrassing). On the other hand, we’re starting to see a bit of rebound in Wall Street. Can this be explained by a lessening of jitters?
I keep feeling the need to point out that your view, that this recession does not exist, is by no means the consensus among economists, analysts, or capital markets worldwide. I am having trouble understanding why you persist in this belief.
Stupidest idea ever (maybe not ever) on so many levels.
When stocks move lower and imprudent mortgages default, there is a reason it is called a “correction.” But let’s try to manipulate the markets away from their, well, “correct” level!
Hey, fundamental weaknesses in the economy (bad dollar; import dependance; ridiculous government spending levels; non-existent personal savings rate) can be cured by printing up “government money” and urging people to buy flat screen televisions with it. We can literally spend our way out of a recession!
Hey, I’m a “conservative Republican” President. Let’s give bogus “rebates” to a bunch of people who didn’t even pay any net taxes. But let’s deny them to the people who paid the vast majority of the actual tax burden – anyone making over $75k. That’s not socialism and wealth re-distribution or anything!
There is no proof we’re in a recession and the notion that we will enter a recession is not a consensus among economists or analysts, either. Since there is no proof we are in a recession, then I will continue to say that we are not. Acting as if we are in a recession or that a recession is inevitable is foolish public policy in my view.
(1) Do you have evidence that the people in question didn’t pay any net taxes? Are you including payroll taxes and state and local taxes?
(2) The reason why those people making over $75k have the vast majority of the actual tax burden is that they have the vast majority of the actual income.
(3) If you want to stimulate demand in the economy then you have to give the tax breaks to people who will actually spend the money. Giving tax breaks to people who will just invest it won’t work if they don’t see the demand their to justify their investment. [And, FYI, I am one of those people making over $75k so my arguments here are not based on my own narrow economic self-interest. I think it would be idiotic to give someone in my position a tax rebate in the hopes that I will spend it and stimulate the demand side of the economy. I’ll just put it in the bank.]
This is throwing a pebble into the rapids…since this is only like a 0.4% pay raise to me, this will instantly be dwarfed by inflation, gas, tuition, health care, etc which are spiking by an order of magnitude higher over the same time period. There won’t even be the slightest detectable ripple in the economy from this, yet the federal government will have a measurably greater budget deficit.
I get a stream of daily analyst research documents from sell-side investment houses every day. Bruce Harting’s specialty finance note from Lehman yesterday was particularly telling: he sees even worse fundamentals in today’s economy than there were in 1990. I read a half dozen analysts’s reports every day, and while they can find upside in certain situations, the outlook is quite poor. My own position in the trenches of the consumer finance industry only confirm this. I am trying not to talk out of my ass here: my role is to analyze billions of transactions in the US to prospect for stuff like this. I’m sorry I can’t share the results of my work here, but to my eye, the picture is not rosy. I am not taking the media’s word for it, I play with the data myself.
But there are really two issues here. Are we in a recession? Well, we won’t know that until we see two quarters of negative growth. That’s what defines a recession. Maybe we’re in one and maybe we’re not. No one knows for sure.
Second issue: Should the government try and prevent a recession? Again, a debatable subject. But it seems to me that the current situation (whatever you want to call it) has been brought on largely by people spending money foolishly. Giving them more money in the hopes that they won’t continue to spend if foolishly seems, well, foolish.
Of course they do. If the policy is a “tax refund,” leaving out those who were the biggest taxpayers is nonsense. Of course, it is not really a tax refund but is instead a giveaway. Fine – but have the honesty to call it what it is.
But I don’t particularly want to stimulate demand in the economy. I’ve not accepted that “demand” or “consumer spending” are always and necessarily good for “the economy.” They can lead to inflation. They discourage saving. Oh, by the way, “investment” and “saving” are, some believe, actual goods – they build businesses, can spur innovation and capital investments. Buying a flat screen television that will end up in the landfill three years from now – a more dubious good. And while I don’t “need” the rebate, there’s no reason I should have had the tens of thousands of dollars extorted from me if all they can think to do with it is buy votes from the mob.
What “tax breaks” do you refer to? The confiscatory AMT, which does away with deductions for anyone earning much over six figures? The privilege of paying close to 40% of your income for a government that does nothing useful?
The “transfer of wealth from the poor to the rich” to which you refer is otherwise known as “the market.” My whole point is that people who don’t want money to flow according to the market, but rather want the government to pick winners and losers, are called communists. I just wish they’d go ahead and own up to what they are.
I always feel caught in the middle with these things. For the purposes of this refund and things like the AMT, my wife and I are “wealthy”. I don’t feel wealthy. I have school debts still. I have a mortgage. We haven’t had kids yet for largely economic reasons.
I feel like I’ve always done the responsible financial things. Having one car (used and quite economic). Buying a house within our means. Focusing on education and career. Still watching a 26 inch tube television with basic cable. Having a budget and sticking to it. Two earners working 80-100 hour weeks to get into a decent economic situation.
So, why do I get lumped in with the “wealthy” as if we’re just sitting around pretending to be artists and sucking off a nest egg?
Heck, I could really use 1200 bucks! I was never supposed to be part of the fifty wealthiest families hit by the AMT! I understand not giving 1200 bucks to Paris Hilton, but believe it or not, it would actually help me quite a bit.
At a certain point, I’ll say the heck with it and cut back on my productivity and probably end up in an equal position economically because I’ll be getting rebates and be allowed to make deductions.
Sure, the owl of Minerva flies at night. But to wait two quarters to see whether current conditions can be fairly called a recession seems rather self-defeating. Our fundamentals right now are extremely consistent with those of a recession, so it would not be inconsistent to make recessionary policy.
The current situation has been brought about by many factors, only one of which is the foolish spender. And yes, giving that person more quarters to play the slots is not what I would call prudent, either.
I don’t think foolish spending in and of itself can bring on a recession. The problem is caused when the money being spent is largely borrowed on credit. When the public lives within its means, spending drives the economy upward, with little regard for what they are spending on. The problem comes when the spending is powered by home equity loans and maxed out credit cards; when the equity disappears, and credit limits are reached, the economy can no longer expand.
One of the problems you have in talking about “taxes” is that most people think only of income taxes. But for many people, FICA (Social Security) is the bigger burden. Many people pay no income taxes, but everyone who works pays into FICA. Sure, it’s sort of a retirement program, and those people may end up getting more back than they pay into it, but it’s still a burden right now.
That is not to say that I think this stimulus package is a good thing. I’m just happy that it is relatively small, and hopefully won’t hurt things too much.