USA tax rebate

[freeztar]

Before I begin, this post is not only for Americans. The philosophical/economic issues are global.

The Associated Press: Agreement Closer for Economy Rescue Pact

President Bush and Nancy Pelosi came to an "agreement" on the "Economic Stimulus Package" (ESP). A (at least close to) majority of Americans will be receiving a $600 dollar check ($1200 for married couples).

I was talking with my brother (he's a financial advisor for a large firm) earlier today and we got into a debate.

His argument was that gov't should not be giving money to people who do not pay income tax. If we do that, the economy will not grow as much.

My argument is that a majority of Americans will spend that check for whatever (big screen, new muffler (hopefully), new computer, etc.) and increase the economy in that way.

We butted heads over the difference between the two idealogies.

If the ESP gave equal amounts to everybody, what would be the modeled result? What if the gov't holed-up and gave nothing? Where does the sweet spot on the bell-curve lie? Is $3000 earned income a good cut-off point for qualification? Should it be higher/lower? Should we give checks to people who do not pay income tax? Is there a system in place to ensure that this doesn't happen (if indeed it shouldn't)? How does this stimulus package compare with the 2001 "tax refund" initiative that Bush enacted shortly after being elected?

And lastly, what other options do we have?

My brother and I touched on all these points, but we came to a stalemate as far as the debate. Unfortunately for me, he has a much more intimate grasp on money issues so I have to bow out when the debate gets too heavy on the side of economics (and especially financial-speak).

What does everyone think?
Fellow Americans, is this a good plan or not?
International allies, is this going to help you or hinder you?

[InfiniteNow]

While some extra cash in my pocket to pay some bills is never a bad thing, I think this plan is enormously misguided and short-sighted. It seems more to show how fiscally irresponsible we are, to pander to potential voters in the coming Presidential elections, and worse... implies that those in charge of the US economy have lost confidence and don't know what they're doing. As my first sentence above indicates, many people will simply use the money to pay bills or put it into savings accounts. This does not help the economy, and it sure doesn't help the financial industry... the ones who seem to be struggling most right now.

Misguided and short-sighted, and a feeble attempt to buy favor from the voting populace.

[Cedars]

I dont think we should be giving rebates. The economic problem going on right now is basically Too Much Credit given to people (in general) and a majority has maxed their credit cards without having anything to back it up. The rebate will translate into red-ink in the end.

As far as giving money to people who didnt pay income tax, well they did pay tax. Sales tax, phone tax, license tax, license fees, etc. Plenty of hidden taxes that they cant deduct from their taxes, or its just not cost/time effective to file over.

And poor people spend the money with as much zeal as better off people. And in the end, it all ends up in corporate americas/japan/china/etc. hands anyways.

[Zythryn]

I agree completely with InfiniteNow.
It reminds me very much of Wimpy from Popeye. I will gladly pay you in the next administration for a stimulus package today.
We are borrowing the money to do this. So either taxes will go up, or services will decrease in the future to pay for it.
However, if this is going to be the solution, I think it should go to everyone with a gross income less than $50,000, perhaps $40,000. The poor are in more desperate need so it will do more good there. And these people are more likely to spend it than save it which will be of immediate benifit to the economy.
As for what would work, I think a restructuring of taxes would help. Get rid of loopholes, and cut or eliminate corporate taxes (as this will lower product prices unless or corporation has a monopoly).

[TheFaithfulStone]

I'm going to use it buy savings bonds.

TFS
[more please]

[freeztar]

Freezy puts on his "devil's advocate" cap.

Originally Posted by InfiniteNow

While some extra cash in my pocket to pay some bills is never a bad thing, I think this plan is enormously misguided and short-sighted.

Why is it "misguided and short sighted"? I would LOVE to see some numbers on this. I wonder if they are available?

It seems more to show how fiscally irresponsible we are, to pander to potential voters in the coming Presidential elections

Interesting point that I have not considered...

and worse... implies that those in charge of the US economy have lost confidence and don't know what they're doing.

Why? Are ALL our leaders (bipartisan Congress included) lost?

As my first sentence above indicates, many people will simply use the money to pay bills or put it into savings accounts. This does not help the economy, and it sure doesn't help the financial industry... the ones who seem to be struggling most right now.

My brother would gasp at that. If people put their money into banking accounts and it is the banks that are hurting most right now, then how will that not help?

[Erasmus00]

Originally Posted by Cedars

I dont think we should be giving rebates. The economic problem going on right now is basically Too Much Credit given to people (in general) and a majority has maxed their credit cards without having anything to back it up.

Actually, the problem is really one of loans, more then credit cards. The government passed some laws that allowed for "creative loans" and more lax loan restrictions. The reasoning was that it would create more home owners, and home ownership=economic stability. These "creative loans" were partially responsible for the housing boom through the early 2000s.

Banks gave out these subprime loans under the theory that (since the housing market was booming) if they were forced to foreclose on a home loan, even while they lost the loan money, they could sell the home at profit (again, due to the housing market boom). In a sense, these subprime loans allowed banks to speculate on the housing market.

Normally, banks would never speculate on something so risky, but to encourage these type of home-ownership loans, the government put in a safety net. The banks could fund loans through fanny-mae and other (essentially government funded) lending houses. So, with controlled risks, banks speculated with these loans. The housing bubble burst, and the banks started really hurting.
-Will

[freeztar]

Originally Posted by Cedars

I dont think we should be giving rebates. The economic problem going on right now is basically Too Much Credit given to people (in general) and a majority has maxed their credit cards without having anything to back it up. The rebate will translate into red-ink in the end.

Very good point Cedars.

As far as giving money to people who didnt pay income tax, well they did pay tax. Sales tax, phone tax, license tax, license fees, etc. Plenty of hidden taxes that they cant deduct from their taxes, or its just not cost/time effective to file over.

I agree, but my brother's point was that income tax is much higher than sales tax and there is a potential that many illegal immigrants will recieve checks (siphoned away to Mexico perhaps).

And poor people spend the money with as much zeal as better off people.

That was one of my main arguments. People who are poor, in general, love to spend money (hence they're poor).

And in the end, it all ends up in corporate americas/japan/china/etc. hands anyways.

Which is ok in my eyes because our economy influences the global market and vice-versa.

[freeztar]

Originally Posted by Zythryn

We are borrowing the money to do this. So either taxes will go up, or services will decrease in the future to pay for it.

How will services decrease?

However, if this is going to be the solution, I think it should go to everyone with a gross income less than $50,000, perhaps $40,000. The poor are in more desperate need so it will do more good there. And these people are more likely to spend it than save it which will be of immediate benifit to the economy.

I agree. Other people seem to think that the opposite would be more beneficial for the economy. I honestly don't know without seeing the numbers.

“It will help to stimulate our economy in the most direct and effective way possible: by putting money back in the pockets of middle class families, and by giving employers incentives to create new jobs and grow our economy,” the Ohio Republican said. “Equally as important, this agreement contains no unrelated spending or tax increases – a Republican condition of support from the outset of our negotiations.”

The Swamp: Economic stimulus deal fragile

As for what would work, I think a restructuring of taxes would help. Get rid of loopholes, and cut or eliminate corporate taxes (as this will lower product prices unless or corporation has a monopoly).

The U.S. Chamber of Commerce and other business groups cheered the inclusion of almost $50 billion in tax reduction measures that would allow them faster depreciation and more generous expensing of equipment.

Democrats said the compromise would provide a greater stimulus because it would put money in the hands of lower-income households, which were sure to spend the entire rebate.

Recession Fear Pushes Parties Together To Cooperate On Economic Stimulus -- Courant.com

$50 billion (!!!) to businesses...

[Michaelangelica]

Stimulus Gone Bad


By PAUL KRUGMAN
Published: January 25, 2008

House Democrats and the White House have reached an agreement on an economic stimulus plan. Unfortunately, the plan — which essentially consists of nothing but tax cuts and gives most of those tax cuts to people in fairly good financial shape — looks like a lemon.

http://www.nytimes.com/2008/01/25/op...ml?ref=opinion