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Apparently, the leaders in our executive and legislative branches have come to agreement with regards to saving the economy: they will courageously tackle our massive deficits, incalculable debt, and dismal growth by giving everyone $600. There are so many things wrong with this plan that I didn't even know where to begin; I had to go outside and throw rocks at the house for an hour until my anger subsided and I could write this post without breaking the keys off my keyboard. Let's look at the facts.

The main goal of the economic stimulus plan is to put cold, hard cash into the hands of normal Americans, who will take their unexpected bounty to the mall so they can buy presents and dine out; proponents say that this increase in consumer activity will boost payrolls, calm Wall Street, and save us from certain recession. The original version of the proposal (drafted by the House and endorsed by the president) would grant a $300 tax rebate to the dirt poor, $600 to taxpayers making less than $75,000 per year, and a few extra bones to people with kids; if you make between $75,000 and $87,000 per year, your rebate would decrease as your income increased, eventually bottoming out at $300. Six-figure breadwinners need not apply.

The Senate modified this proposal by doubling the maximum income levels so that wealthier individuals could get in on the super fantastic rebate action. It is not yet clear which version of the proposal will "win", but it looks fairly certain that all lower and middle class families will be getting a check for $600 just in time for those Memorial Day shopping extravaganzas.

Now, on the surface, this is encouraging: politicians managed to agree on a policy and enact a law in a matter of days, with an immediate result for the American public. Finally, a win for the middle class! Right?

Wrong.

Well, sort of. I'm sure that the extra $600 won't hurt middle class taxpayers, but the good feelings it creates will be short-lived; considering the deep financial hole that we are sitting in as a country, I think it would behoove us to consider the long-term impacts of this plan. This kind of inspection is not nearly as immediate or satisfying as the idea of giving everyone $600, but I am going to do it anyway.

The first thing that's wrong with this plan is that it confuses public sentiment with its original goals. Giving a few C-notes to middle class families on the brink of a recession may brighten their day, but it won't lead to concrete economic growth, which means that it won't really improve their lives. By most accounts, American families are in much the same situation as their government: they are in severe debt and find themselves robbing Peter to pay Paul, all to live the American Dream that is sold to them on TV. This means that the average person will use their $600 in one of three ways:

1. Payment of credit card debt, overdue bills, or loan principals.
   


2. Savings for emergencies, retirement, or education.
   


3. Purchase of new clothes, music, or other things they don't need.
   

The first two options are obviously the more responsible ones for someone who has incurred a lot of debt or has not made a practice of planning for the future. That may sound good from the perspective of someone who wants to help average Americans, but remember: the goal of the plan is to revive economic growth. I will try to explain why I think these things are in conflict without sounding like a heartless bastard, but I can't guarantee anything. Just so you know.

In the first scenario, the person is paying off debt for things that he bought in the past. The debt is still very real to him, but in the eyes of financial analysts and corporate executives, it's ancient history; when John Q. Public bought that new iPod with his credit card last year, the bank that issued the credit card paid his debt to Apple Computer in full, and that payment was recorded and celebrated during the same fiscal quarter. The fact that John is beholden to his lender at an 18.9% APR does nothing to advance the state of the national economy; paying down his debt is a good thing when it comes to his blood pressure, but it's not going to register as new economic activity.

The second scenario is even more optimistic and hopeful than the first, but it will also cause us to miss our target. I sincerely hope that the majority of Americans will save their rebate money, but I also realize that this will be discouraging because money in the (individual's) bank has no impact on our economic growth rate.

Given our history as consumers, and the fact that so many of our citizens came into debt by shopping and over-extending themselves, it is likely that many people will give in and go along with our third scenario. This is exactly what politicians are hoping for, but even this will not "save" us. The Experts concede that even if everyone spends their rebates on shiny new gadgets, the growth that we'll see next quarter will be 1-2%; now, 1-2% of the American economy is an incredibly large amount of money, but it will be overshadowed by the negative effects that we will see in subsequent quarters. If people don't do the responsible thing and pay down their bills, then they are only making their situation worse, and it will take them even longer to pay back this "free" rebate. Do we really want to encourage this kind of irresponsible spending? This is how we got in a hole to begin with!

Sending money to people who are in debt and don't have savings sounds nice, but it won't give us the results that our politicians want. If the recipients use it to pay bills or create savings, the economy will continue to stagnate; if they use it to buy more stuff, they are just digging themselves a deeper hole. Everyone will be excited for a couple of days in May, but we'll be back in a rut by June. Mission: not accomplished.

If we really wanted to increase economic growth by a few points this summer, we would give the $600 to those who make more than $75,000 per year because they are more likely to have disposable income. Now, let me be clear: I do not feel that the goal of temporarily increasing economic growth by 1-2% warrants giving a tax break to upper class taxpayers. Additionally, I do not need $600 from the government, nor will I feel any hostility if, when the final numbers are released, it turns out that I lost the tax rebate sweepstakes. I'm fine. Really. This is not sour grapes from someone who has a comfy job at the largest IT company in the world.

That said, people with disposable income tend to... dispose of it. They go out to eat and buy things they don't really need, all of which fuels the job market and salary numbers that have so concerned our dear leaders. The growth caused by such disposal of income would still be temporary, but it would happen. If this is the goal, the tax rebates should go to the upper middle class: those wealthy enough that they don't have unmanageable debt but not so wealthy that $600 is a drop in the bucket.

Of course, you cannot, in an election year, tell middle class voters who are financially strapped that the answer to their problems is a tax rebate for people who don't have any problems. I understand that. But I would hope that our leaders would understand the points I have raised and not make the proposal in the first place, thus avoiding the debate entirely.

The second thing that is wrong with this plan is that our government cannot afford to give us a tax rebate right now. We have not had a balanced budget in almost a decade. Our national debt makes me want to throw up under my desk. Our 401k money and future business plans are riding on the hope that large Asian countries will continue to buy our bonds. We are in a war that, whether you approve of it or not, costs billions of unbudgeted dollars per year. And despite all of this, the government wants to return part of its yearly income? If this idea were any more stupid, the amount of stupidity would cause some kind of cosmic integer overflow and make the whole thing brilliant.

Put another way: if the government were a person, he would have nothing to his name. He would have his credit cards taken away, his car repossessed, and his belongings sold at auction after settling in bankruptcy court. If such a person offered you $20 because he knew you were a little short on cash this month and couldn't afford to meet the gang for drinks, would you take it?

No?

Well, that's the situation we find ourselves in right now: we're handing out rebates like its 2001 despite a massive increase in debt. I'm a fairly libertarian guy, which means that I normally perk up when people mention tax cuts; the fact that I'm saying the government should keep our money should clarify just how bad I think our balance sheet is. It's never fun to pay taxes, but when your leaders overspend their budget multiple years in a row, you either have to increase their income (taxes) or boot them out of office. You can't Reagan-omics your way out of a $400 billion deficit. You certainly can't do it seven times.

In summary, this plan is a joke. In the best case, tax rebates for lower and middle class people will not generate economic growth, and in the worst case, it will generate a small bump in growth but increase the deficit and weaken the dollar. It's a lose-lose situation. Frankly, I have trouble believing that anyone involved with this plan would pass a second grade arithmetic test.

Fail.

Labels: culture, law, narcissism