[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.

InfiniteNow said:

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?

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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...

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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?

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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]

Cedars said:

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]

Cedars said:

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.

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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).

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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).

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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]

Zythryn said:

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?

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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.

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“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

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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).

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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]

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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.c...tml?ref=opinion

[Zythryn]

Michaelangelica said:

http://www.nytimes.c...tml?ref=opinion

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...gives most of those tax cuts to people in fairly good financial shape

I don't get the reasoning. Are people that earn 50,000 a year getting two checks where people that are not in 'fairly good financial shape' getting only one? That statement seems non-sensical.

[Zythryn]

freeztar said:

How will services decrease?

While it may be simplistic on my part, it seems to me if the government doesn't have enough money it can do one of two things:
Raise taxes (this could be tarrifs, income tax, SS tax, etc) or
Cut spending (this is where the 'services' part comes in).
Now, it may not be services you depend upon directly or it may be services that need to be cut anyways.

[Racoon]

I don't like the idea/plan much.

What I would do, is somewhat more Rooseveltian.
Create thousands of good jobs rebuilding the crumbling infrastructure and modernize antiquated systems with the money instead!
That would spur more sound growth in my opinion. People able to pay a mortgage and feed their kids. And get something accomplished.

People given $300-$600 will go buy something thats made in China, and/or blow it quickly.

Short-term sightedness, with long-term problems looming.

[Zythryn]

I like Racoon's idea, Racoon for president!!

[Michaelangelica]

Zythryn said:

I like Racoon's idea, Racoon for president!!

me too
Does he know Monica?

I guess they want something quick rather than useful.

For this (quick) my vote would go to doubling food stamp allowance. This would get money into the hands of those who will spend it the quickest.

My feeling is the middle class will just pay off their credit cards/house mortgage which may help the stupid banks like Citibank but will it kick start the economy?
"When the USA sneezes the world catches a cold"

Then I think the USA should look at creating a uniform National Unemployment Scheme rather than a various, different or non-existant state-run ones.

PS
just found this.

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Poll: What Would You Do with a Tax Rebate?
Both the President and the US Congress are mulling over ideas to stimulate the struggling US economy. One proposal is an emergency tax rebate. Different versions of the idea are being considered, with any tax rebates expected to be in the $500 - $800 range for individuals and $1,000 - $1,600 range for those who are married and file returns jointly.

There is a wide range of opinions over whether such an unexpected taxpayer windfall would help the economy at all. Over the past few years, the economy has enjoyed riding on the back of consumer spending to keep it afloat. Those who believe that tax rebates would stimulate the economy hope this will be the case.

Poll: What Would You Do with a Tax Rebate?
How Would You Spend a Tax Rebate?

• Spend it on luxuries
  
  
• Spend it on necessities
  
  
• Save it
  
  
• Pay bills
  
  
• Invest it
  
  
• Start a business
  
  
• Other/Not Sure

Only the first two choices will help the US economy.

Personally I would pay it off my userous Citibank credit card at 19.65% interest. How could they loose ten billion charging that sort of interest?