Many economists have doubts that the stimulus plans being talked about will do much to deter a recession. The reason for this doubt is the fact that number one even $150 Billion is a drop in the bucket in a $13 Trillion dollar economy. Second how much of the $150 Billion will actually end up as new spending?
I do not know if the size of the proposed plans will be sufficient but I do know the Bush suggestions will not maximize the amount that will end up as new spending. First, Bush has suggested payments be made to people who pay Income tax with an income up to $110,000. He also wants a substantial amount to go to business rather then to individuals. Economists agree that to maximize the economic benefit spending the tax rebates is essential. They also agree that people at the lowest income brackets are the MOST likely to spend most of any tax rebate. That is not to say that middle income tax payers will not spend some of any tax rebate but that the low income people will spend more if not almost all of any money they receive as part of any rebate.
The overriding issue is not to help the poor or to shift wealth but to stimulate the economy be increasing consumer spending. The Bush plan to eliminate the 44 Million Americans who do not pay Federal Income Taxes and to send a large portion to business means he will ignore the element of the people that are most likely to do what he says is the intent of the stimulators package—Increase spending. The Democrats want to provide the rebate to all people with incomes below $110,000 including the 44 Million the Bush plan would ignore.
Any tax help to business should be tied to companies who expand American jobs. It should NOT be given to companies to just improve their profit margin or to enable then to expand operations that do not create American Jobs! The worst use of any tax rebate would be to help companies create jobs or capital investment outside the U.S.
The Bush stimulus plan is yet another example of a policy that from its basic concept is not designed to use sound economic principles. I guess Professor Tsurumi, Bushes economics professor, was correct when he said that GWB was one of his worst students!
Finally is how we pay for ANY economic stimulus plan. If we pay for it by cutting other federal spending we exchange one type of spending for another. If we added it to the debt we increase the amount we must pay in interest much of which is being paid to foreign investors. We must pay for any stimulus by increasing the taxes of the wealthy that can pay this added tax from their surplus. There is NO evidence that a small increase in the tax rates for the wealthy will reduce spending or investment. The economic reality of the 1990’s PROVE that when tax rate were higher for the wealthy the economy was strong. If demand is strong business will make the investment needed to provide for the demand and will continue to employ people to provide the goods and services people purchase. We do need to discourage business from moving jobs to other countries or make capital investment outside the U.S. We should enact tax penalties on companies who move jobs and production to foreign countries!