It is no secret our economy needs a boost right now. The Dow Jones was down 4% just last week, the housing slump continues, our dollar is weak coming in today around $1.44 against the Euro, and oil, although its down a bit now to $89 a barrel, is still high enough to pinch the pocket books of many Americans.
We need a quick, non-partisan effort to stimulate our economy, and that’s what President Bush proposed on Friday.
To make a difference, his economists advised him that tax relief would need to be approximately 1% of GDP, which is $145 billion. This means American individuals would get a tax rebate of $800, and American families will receive $1,600. Currently, the President is negotiating the final details with House and Senate Leaders,Pelosi and Reid respectively before it hits the Congressional floor.
Several things come to mind when I hear about this stimulus package. I’m concerned it may be too little, too late. I wonder where the $145 billion is going to come from, and I am also concerned it won’t jolt the economy like its intended.
Secretary of the Treasury, Henry Paulson, said it will create 500,000 new jobs that otherwise would not be created. This may occur if people spend the money. However, consumers are forward thinkers and like to practice a smooth consumption pattern over time. Since this is a one time tax rebate, many people will save some of it, pay bills with some of it, and then spend the rest. A $800 tax cut really is not an $800 consumer spending spree back into the economy from a given individual. I would like to see this stimulus plan coupled with some incentives for capital investment. If this tax relief is planned to add 500,000 jobs, imagine what it would be if there was added investment directly into businesses. This will address the short run concerns I have about this short term bandaid. The problems our economy has now are not short term, so therefore a short term fix really doesn’t fix much. Added capital investment will provoke the economy long term and allow the economy to expand over the long run. More private investment means bigger firms with more jobs, therefore more tax revenue coming in through income, higher consumer spending results from more income, which requires more jobs and increases incoming tax revenue, and the cycle continues. So, although I do not disagree with the President’s plan, I am arguing for a harder nudge in the sides of our liberal Congress for a better tax relief package. I think most of our Congress realizes the dire need for this plan to go through quickly; however, we have some liberals like Hillary Clinton who is already complaining about the 50 million Americans who will not be included in this package. I’m sorry but if you’re a family of four making less than $24,500 a year, you’re not really paying into the tax system to be able to reap the benefits of a tax cut. This is a typical complaint from our liberal Senators and Congressmen who prefer government handouts and fixes rather than free market incentives. Global markets also have responded pessimistically to this plan today. Fears about our stability and late timing to this package have caused markets abroad to fall. Regardless of whatever the plan is, I just hope that politics is put aside so that this can be passed quickly and efficiently so that the stimulus will occur.
