The beleaguered taxpayer within me, I must admit, salivated at the idea bandied about by President Bush to issue a one-time tax rebate of $800 per adult taxpayer as a means of stimulating the sluggish American economy. After all, I need to replace the screen door that was ripped from my house by a recent windstorm, and my wife and I are working a total of one full-time job and eight part-time jobs in an effort to stay afloat and to pay for a planed trip to Europe this summer.
The Bush plan will pump an estimated $145 billion into the economy, with the expectation that consumers will use the money to purchase big-ticket items such as new cars, houses, and refrigerators. Perhaps such a move might quiet the stock markets, whose instability took a turn for the worse this week amid announcements that Citigroup, JPMorgan, and Merrill Lynch initiated massive writedowns.
The fiscal conservative in me questions the wisdom of adding to budget deficits in a time when the nation already faces a serious credit crunch, and when the U.S. dollar is in a near free-fall on world currency markets. Deficits, of course, put the government in the position of competing for credit with businesses and consumers, and typically drive up interest rates. In addition, one-shot tax rebates have a rather poor record of acting as economic stimuli, and a similar scheme in 1975 had little real impact on consumer spending.
Moreover, $145 billion seems relatively inconsequential at a time when the American economy is estimated to be over $13 trillion. While there will undoubtedly be some short-term stimulus from such a rebate, the underlying economic problems in the American economy - such as stagnant employment growth, the continued loss of manufacturing jobs, rising inflation, and the credit crunch - will not be addressed in this warm and fuzzy taxpayer moment.
So, as a taxpayer, I will happily cash any check that the federal government decides to send me, but I am simultaneously preparing my family for the recession that looms on the horizon, an economic downturn that sober pundits like Robert Kuttner and William H. Donaldson liken to a certain depression that most of us are too young to remember. We are more likely to pay some debts than to make any significant purchases with any hypothetical rebate, and I know that this bunker mentalité is shared by many of my friends.
Buckle up those seatbelts, folks - it looks like financial turbulence ahead.