Jan 20, 2008

On the American Economy and $800 Tax Cuts

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.


Tim Higgins said...


Like you I will gladly accept any money that the government returns to me (money that should have stayed mine in the first place). I wish however, that in announcing all of this largesse, that they were also talking about massive budget cuts to help the dollar instead of extending the government's "helping hand" in additional ways.

It seems to me that their idea of how to solve an overdrawn checking account is by writing a big check and then going to the ATM for cash.

engineer of knowledge said...

Hello Mike,
During the Regan years the U. S. went from the largest creditor nation to the largest debtor nation.

I cannot help but remember candidate G.W. Bush ranting on about the tax and spend Democrats in the 1999 elections before he took over in 2000. We had a surplus in the coffers and were paying down the massive debt that Regan and Daddy Bush had run up. But because there was a surplus, well that was your money from where the citizens had been over taxed. Dubya opened up the doors to the candy store and everybody got something because it was all free and no one has any responsibilities. Everyone got a few hundred dollars that they pissed away on a night out at a restaurant or bought the latest video game all the while disregarding that there was this large national debt hanging over our heads posed to financially crushing our own children and grandchildren.

Well the national debt is now larger than anyone could ever imagine. There was even less taxes collected but the Charge It and Spend Republicans went on a spree never before seen by any administration previous. This nation may have come close during WWII but the debt was funded by U.S. citizens with War Bonds. The citizens of this country financed that debt. Our current debt is now owned by Dubai, Saudi Arabia, China. We are even borrowing more money from this group just to pay the interest on what we all ready have borrowed from them. If this was a business or family’s finances, everyone would say that is was obvious that they were bankrupt.

Now Dubya’s answer is, “We need to open the candy store again so I can make everyone feel good with a sugar high then they won’t think of the problems I have cause when it comes to election time. After everyone comes down from their sugar buzz, the reality will sink in that we are now even more in debt than we ever were.

Hooda Thunkit said...


You, Tim and "engineer of knowledge" have all made very good points.

However, I'd like to add that cashing this check is essentially slapping the burden of this "gift" flat on the backs of our great grand children.

I say that because we've already spent our grand children's futures...

I would much rather that we cut, say 50% of the aid to our greedy friends overseas and lower our future indebtedness by curtailing our largess down to zero in the next 3-5 years.

That curtailing of spending is only the start to living within our means and paying down our bills.

That would do more to stimulate our economy that throwing "chump change" to the masses, some of whom would rather pay down their own bills/debts rather than spend it willy nilly as the Gubment would wish us to do.

microdot said...

Buncha in grates! Lissen up, I got your 500 buck happy meal bank note right here! you can down load it and print it out, it's good at any McDonalds for ONE! that's 1, understand, Happy Meal!
Get them now before they're gone at


Have a real nice day!

The Screaming Nutcase said...

I would much rather that we cut, say 50% of the aid to our greedy friends overseas and lower our future indebtedness by curtailing our largess down to zero in the next 3-5 years.

That curtailing of spending is only the start to living within our means and paying down our bills.

"Only the start" is an understatement...Social Security and Medicare together make up over half of federal spending; foreign aid is something less than 1%.

steve said...

I think it's a naked ploy to steal from the next administration. He's raising the deficit even higher so that the next administration will have a really tough time enacting any sort of progressive legislation like health care. The budget deficit will be the next administrations major headache. Just like the Reagan Bush excesses became Bill Clinton’s headaches. Remember he had to rescind his promise to reduce middle class taxes?

Robin said...

While I would love some extra spending money, I think this is an unwise plan from the Bush administration. I also think it encourages foolish spending (like people really need help to do that).

I also wonder why Bush is applauded by some, when he comes up with plans like this. But, when Hillary Clinton mentioned something about issuing $5000 for each American born child people start screaming "Socialist".