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.
You miss the point. This is like giving a kid $10.00 for the movies. It will do nothing to incent small business to invest more for growth. Or incent people like me to work harder to earn more since the more I work, the more the government CONFISCATES from me. I am fed up working for the government. My work is my time. My time is my life. It's a limited quantity. Therefore, the government is confiscating part of my life.
Think it through.
This silly rebate is a joke. It's an insult to anyone with half a brain.
Cut the friggin spending and taxes.
/rant (flame suit on)
Isn't something better than nothing? At least Bush is starting a dialog, although I agree that we should be getting some permanent tax cuts and that the damn government should cut spending, not just at the Federal level but across all government.
None of these things will come true in my lifetime.
Need to get rid of the “death” tax, altogether, too.
There goes my new muffler...
Good morning,
That was fast and I agree with you. I want to give the gov’t as little as possible.
Uh, does this asshat realize that it’s not the government’s money, IT’S OURS AND ALWAYS WAS???
This whole thing is just away to adjust for the price of gas increase. What they need to do is put pressure on OPEC to increase production and start drilling off shore and ANWAR.
Making the 2003 tax cuts permanent and balancing the budget will do more for the economy and Wall Street and confidence in foreign investors than anything else W and Congress could possibly come up with.
He also lowered taxes which stimulated the economy. Even when the Dow went above 11,000 the press kind of slid over it, when it went above 14,000 little was said. Remember when it went over 10,000 during the boy president’s watch. The presstitutes were all over themselves with glee, telling us how wonderful the boy was for being our president at that time? During W’s watch all we’ve heard are the mistakes he’s made. During the boy’s watch, Rubin and that bunch kept fudging the numbers, but nary a word has been said about that, except a couple of little quips. Please, be a little more honest with you assessments.
I almost responded differently until I figgered you were joshin' 'bout a dem's remark.
Series, if there were less confiscation of our income, we'd not have to deal with replacement mufflers.
This will surely help everyone out and boost the economy!
Another positive is that it is a more honest way to stimulate the economy than lowering interest rates!
This is why added the BS commentary to the title
You are right about PERMANENT TAX CUTS, and I might add take some of the permanent leaches off the dole. We have kids having illegetamet children so they don’t have to work, they go on the dole. We need to stop this kind of thing. We have “experts” telling parents they cannot control their children’s urges, but the parents did it in the past, how come they can’t today? This is one reason our taxes as so high, we have TOO MANY people who can work, not working, because they can go on welfare. We also have people coming here from other countries so they can take advantage of our welfare. It’s been going on for years and we’ve done nothing about it. We need to purge our welfare rolls and make some of these people work for a living. There’s also a group who have a permanent live-in, helping to produce children, the women are working for the government but because the children are illigetamet, they are able to take advantage of welfare-—plus their government salary.
Not only that, it's a scam! With the last "rebate scheme" implemented in Bush's first term, many self employed folks like me never saw that money. The IRS kept it for estimated taxes. Uncle Sam took that $300 that was meant for me in his "risky scheme" out of one pocket and put it in another. It never made it to the economy out of my hands and therefore it had ZERO effect on the economy. I'm absolutely sure that I was not the only one that had this happen to them. Thus, this "rebate scheme" is a scam and is nothing more than election year vote buying. Watch over the coming weeks as the politico's trip all over themselves to see who can give away more of OUR money.....SICKENING!
All this talk of "temporary" stimulus packages makes my blood boil. How about a PERMANENT stimulus package? Why not eliminate the Capital Gains tax entirely? How about cutting corporate taxes to the point where we are a tax haven for businesses worldwide and watch the dollars flow into the economy like never before.
Hey Jeorge, lets do something to lure back some of that $14 trillion or so of business that the Federal Gubmint has run off shore thanks to our confiscatory tax policies!
Slight change to your plan to achieve #3:
Change tax day to the first MONDAY in November or change election day to April 14th. That way, taxes are on their mind when the voter goes into that booth. Do this and #3 won't be necessary.
Another thing that would work equally well is to quit doing withholding. Make everybody have to write the big check 4 times a year, like self employed folks do, instead of having taxes taken away in small bits. That would do more to raise awareness of how messed up our tax system is than anything else.....
“Why don’t they simply print everyone $10,000?”
Because I want $1,000,000.
my investments are taxed,twice, my ss is taxed my property is taxed..so Iam not participating?
Nothing BS about it. Temporary borrowing to fuel consumption is the worst way to stimulate the economy, helps China more than it helps us.
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