Skip to comments.Government Handouts Won't Help Economy (BS commentary)
Posted on 01/20/2008 5:08:24 AM PST by Kaslin
President Bush doesn’t like to admit he’s made mistakes. But if White House chatter about an economic stimulus package is true, the president is about to repeat a misstep made early in his first term.
I’m talking about the 2001 tax rebates -- government handouts that arrived in the mail. Individuals got $300 and married couples received $600 -- all in hopes of stimulating the economy.
With the economy slowing again, tax rebates are back on the table for the White House -- only this time dollar amounts could be doubled -- and then some. The Associated Press reports the administration is contemplating rebate checks of up to $800 for individuals and $1,600 for married couples.
Few Americans would turn down an offer to pad their wallets so thickly. But while $800 or $1,600 might be a nice sum of money in the short term, this approach won’t help grow the economy out of a recession. That’s the disappointing lesson from the 2001 rebates.
Here’s why the earlier rebates didn’t work. The federal government, already operating in the red, didn’t have any money to pay for the rebate checks. Instead, it borrowed billions in the spring and summer of 2001. Consumer spending responded with 7 percent growth in the fourth quarter, but investment spending decreased by 23 percent. By the beginning of 2002, the rebate “fizz” was over. Consumer spending retreated to 1.4 percent annualized growth in the first quarter of 2002, and the economy was stagnant for much of the year.
“The simple redistribution from investment to consumption did not create new wealth,” concluded Brian Riedl of The Heritage Foundation, “Tax rebates ... don’t stimulate the economy.”
Riedl favors an alternative: lower tax rates on income, capitals gains and dividends, similar to the plan Bush successfully persuaded Congress to enact in 2003. That stimulus package produced an immediate turnaround in the economy. Consider these four statistics:
• Gross domestic product grew at an annual rate of 1.7 percent in the six quarters before the 2003 tax cuts. For the six quarters following the tax cuts, the growth soared to an average 4.1 percent rate.
• Non-residential, fixed investment declined for 13 consecutive quarters before the 2003 tax cuts. It has expanded for 13 consecutive quarters since then.
• The S&P 500 dropped 18 percent in the six quarters before the 2003 tax cuts. It increased 32 percent over the next six quarters.
• The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs. More than 8.3 million jobs have been created since August 2003 -- the longest continuous run of job growth ever.
Of course, the political situation is far different today than it was in 2003. Then, the president had defied history by picking up seats for his party in the 2002 elections, strengthening the GOP’s control of Congress. Today he’s competing with presidential candidates and the Democratic Congress for airtime.
That’s no reason for Bush to compete with their policies, however. Sen. Barack Obama would give Americans rebate checks of $250 and congressional Democrats have offered a rebate plan that tops out at $500. Fiscal conservatives wonder what Bush hopes to gain by not only playing their game, but also raising the stakes.
“One-time rebates and temporary business tax breaks that the president and the Democrats seem to be coalescing around are the wrong approach,” said Club for Growth President Pat Toomey.
Added Rep. Jeb Hensarling, chairman of the Republican Study Committee: “[T]emporary consumer tax rebates should not be confused with economic stimulus. ... The last time our country faced recession, rebates were helpful to consumers but did little to turnaround the economy.”
There’s little debate that tax rebates can redistribute existing wealth. But if Bush and members of Congress are serious about staving off a recession, they need to come up with a new plan -- one that will grow the economy. Lower permanent tax rates are a good place to start.
We need lower tax rates on income, capitals gains and dividends, lower individual tax rates and lower corporate tax rates. In fact, we need a single 15% rate on all income.
We definitely don’t need more hand outs on food stamps and unemployment compensation.
Nothing BS about it. Temporary borrowing to fuel consumption is the worst way to stimulate the economy, helps China more than it helps us.
His lousy popularity because of 9/11 and his overall bizarreness, which would have become apparent even to the most brain dead voter once he was the President, would have led to a Republican landslide in the Congress, strengthening our hold on both houses.
The only variable would have been who would have been the Republican nominee in 2004. Whoever it ended up being could still have been a disaster.
W's only real accomplishments have been keeping the terrorists at bay (a major, key accomplishment, don't get me wrong), and appointing two conservative judges to the Supreme Court (ditto). Other than that, we might as well have had a Democrat in the White House.
Precisely. Why would anyone think who purports to be ‘economically conservative” think otherwise?
Im talking about the 2001 tax rebates -- government handouts that arrived in the mail. Individuals got $300 and married couples received $600 -- all in hopes of stimulating the economy.
The writer is correct. W has always been economically ignorant and disinterested. Apparently he hasn't learned much either. The only reason W got a second term was congressman Bill Thomas took control of the 2003 tax cut and economic stimulus bill.
Again, no BS here. The great Milton Friedman made this very point and past experience has confirmed it.
Here I give credit to Romney’s proposed solution, though of course in the best case he can’t do anything about it until ‘09. Romney has taken this herd-mentality demand and responded to it with solid, permanent tax cuts. If only W would have seen to do the same—and pair it with budget cuts!
I donaed mine last time to the NRA will do so again.I also emailed my dem senator and thanked him for the donation.
A supposedly conservative site arguing against giving us back some of our own money. Nice. Real nice.
I'm starting to look forward to the shellacking the Republican Party takes in the fall.
I added mine to my GNMA acnt and thanked me
Agree, tax cuts are better than rebates. Uncle Miltie’s income expectations theory explains why and every serious academic study has proved him right. So how about a cut in the payroll tax. That would put the money into the hands of those with a 100% propensity to spend. Now that would be a worthy stimulus plan right now.
Hows that affect some one with out a pay check?
That was a good idea.Maybe if they double it I can use it to add a new gun to my collection and let my dem. senator know that.
I agree something like this won’t do much. you wan’t real stimulus? cut taxes, regulations, kill all the lawyers. but I’ll still take the check. it’s my money and i want it back. only checks to people who don’t pay taxes are “handouts”. this guy’s got the demhole /libhole mentality that it’s the governments money
We need a three-step program to tax reform:
1. All members of Congress, all Congressional staffers, and anybody on the White House payroll has to file their own federal income tax. Not use Turbo Tax, not hire a consultant or H&R block; sit at the kitchen table with a pencil, stacks of tax information papers, a blank 1040, and the same instructions the IRS mails out to normal people.
2 Either change tax day to the first Tuesday in November, or change election day to April 15.
3. Implement term limits.
As far as specifics regarding what the tax code should look like, well, the only fair tax is the tax that taxes you and not me. The rest is details.
It doesn't. But what's your point? The idea is to stimulate the economy and that by definition means adopting a program that impacts those participating in the economy.
Cut entitlement programs and taxes.
and tax cuts don’t work.
and the surge can’t work.
this is just a stop gap, we need this BUT MORE IMPORTANT we need PERMANENT TAX CUTS.
“What the hell happened to Town Hall?”
Actually, I think that they are partially right. The rebate is a good, very short term, stimulus. A tax cut takes a little longer to have an effect, but does work better for the long haul.
Probably there will be a mix of both.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.