Recession Anticipation Loan Agreement Reached
1. The agreement reached today would allow Americans to keep more of their money to stimulate consumer spending. The growth plan provides approximately $100 billion in temporary relief that will allow Americans to keep or spend more of their incomes. Under the agreement:
- In 2008, taxes would be cut from 10 percent to zero percent on the first $6,000 dollars of taxable income for individual taxpayers and the first $12,000 of taxable income for couples. Taxpayers could receive rebates of up to $600 for individuals and $1,200 for couples. A minimum of $300 per person and $600 per couple would be available to those with at least $3,000 of earned income. This relief would be available to everyone with taxable income less than $75,000 for singles and $150,000 for married couples filing jointly. It will be phased out for taxpayers above those income thresholds.
- Everyone eligible for this relief would also receive an additional $300 per child. For example, this would mean up to $1,800 of tax relief for an eligible couple with two children.
2. The agreement would also offer incentives to spur business investment. The agreement would save businesses approximately $50 billion in near-term taxes through a temporary change to the tax code that will allow American businesses that buy new equipment this year to deduct an additional 50 percent of the cost of their investment in 2008. This will encourage businesses to expand and create new jobs now because buying equipment, software, and tangible property this year will dramatically lower their taxes. The agreement also increases expensing for small businesses.
Source: Whitehouse (All emphasis in original)
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I’ll admit right up front that the Anderson family won’t be “spurring any economic growth” with our $2400 (I have 4 kids x $300 + $1200). We’re going to be paying off some debt – you know, all that “spurring” we’ve been doing over the last couple of years.
No doubt my wife and I, we have 3 kids, will use ours to partially defray one of the quarterly tax payments I make to the Feds.
Well, I’m glad that a lot of people I know claim that they’ll be using the money to pay off their debts, as the federal government obviously has no intention of getting a handle on its own.
“… I’m glad that a lot people I know claim that they’ll be using the money to pay off their debts, as the federal government obvioulsy has no intention of getting a handle on its own.”
Maybe we can all set an example.
;-)
I’m going to use mine to buy lotto tickets and become a millionaire.
It’s kind of ironic that democrats say tax cuts don’t spur growth. These rebates are the same as a tax cut, aimed at stimulating the economy and they agree. I guess the difference for them is that people who don’t pay any taxes will be getting a rebate and the people who pay the most will get nothing back.
Anywho…
Like some others, I’ll use mine to pay off some debt, and maybe go out to dinner with my wife.
Can somebody explain why maintaining consumer spending is so important?
Sure, consumer goods are a big chunk of our economy. But if people cut back on their spending, saving what they have and not feeding the credit card companies, that saved money will head for more productive investments. That could grow the economy here and diversify our own market, so we don’t have to panic when people stop charging plasma screen tvs to their MasterCard.
In the absence of explanation, I retreat to trite analysis of self interests, thinking politicians want to keep the stock portfolios of themselves and their friends from declining.
None of this will do much good. Too little, too late.
The economy is now bumping up against an immovable object: the humble, hard-working American worker hasn’t had a real raise in 30 years, and now all the credit cards are maxed out and the house is “upside down” (worth less than the mortgage amount) so no pulling equity out to finance consumption.
Welcome to September 1929.
Tim:
Let’s get the economics straight. The idea of a fiscal stimulus is precisely that, to stimulate aggregate demand. It does so in two ways. First, the government spends the money directly. Second, it gives it to people to spend through tax cuts. What will be more effective? The first one. Why? Because when a government spends, by definition, 100 percent of that amount is spent. But if you get a tax rebate, you will spend only part, and consume only part. Indeed, there is a theory out there, arising from the work of Milton Friedman and Franco Modligiani, that you spend out of permanent income, not current income. So if you get a once-off tax cut, you may just save it. Robert Barro argued that a tax cut today will have no effect at all as the financial position of the government is unchanged, meaning taxes go up tomorrow. You know that, so you don’t feel any better off, so you don’t spend the money.
No, when people criticize Republicans for voodoo economics, what they mean is that tax cuts do not have an appreciate impact on the supply side, on productivity. In other words, tax cuts do not pay for themselves.
The problem with using government spending to increase aggregate demand is that the money the government spends has to come from somewhere, which means in all likelihood the increase in demand that comes from increased government spending will be offset by the decrease in demand that results from the government either taking, borrowing, or printing more money. If you had a situation where people were saving “too much” of their income, increased government spending could in theory boost aggregate demand, but that’s not the situation we’re in right now.
If spending goes for constant taxes, teh government borrows more. If taxes are cut for constant spending, the government borroes more. Same thing. If the increase in borrowing pushes up interest rates, then yes, that can crowd out private investment, but the effect is the same for increasing spending or decreasing taxes.
True enough. I didn’t say I favored tax rebates as a form of stimulus, only that I was skeptical of increasing government spending as a form of stimulus.