Every time I hear an argument against a tax holiday on payroll deductions, the answer is the same. In all of the conversations, this one point has tended to be remarkably diametrical.
Q. What's wrong with giving people a payroll deduction as part of the stimulus plan - basically why is government spending better than tax relief?
A. When the government spend money, it is actually spent. When people get a tax rebate, then they are more likely to save the money. What we need in stimulus is actual spending.
Blah blah blah.
So when did saving money suddenly become bad? Bad for whom? It's certainly not bad for me to have more money to spend or save as I choose. How about you?
But let's be economic about it shall we?
1. Why did Morgan Stanley buy B of A? Because MS needed the deposits of a retail bank to offset the toxic assets on its balance sheets. When economists answer 'consumers will save the money' where do they assume we'll save it? Under our mattresses? If they are so sure we'll save instead of spend, it doesn't take a genius to see that we will either put it on deposit in banks or invest back into the stock market. Since when is that a bad thing?
2. What happens to the argument against wealth destruction by those who say saving is a bad idea? If I lost 30% of the value of my 401k in 2008, and now the market is at a bottom, I'd be a fool not to reinvest new money that I never had before. That's saving too. Plus it has the added benefit of stimulating the equity markets. Since when is that a bad thing?
OK so maybe this isn't two different counter arguments - they are part and parcel of the same argument, which is so long as consumers get the tax relief, the some part of the economy is guaranteed to benefit. But I guess that is not the part of the economy that the Obama Administration wants to benefit. It wants that part which is aligns with his strategic spending goals to benefit, which is why if he spends a trillion the way he wants, he's going to run into a brick wall with Americans like me.
The analogy is simple. America has been hit with a financial hurricane. Obama is quadrupling the budget for FEMA instead of giving us direct relief.
If Barack Obama made 2009 the year that Americans paid no Federal Income Tax, he would go down in history as one of the greatest presidents ever. What are the chances of that? And what are the names of the people who are going to get their pockets lined by this stimulus package instead?
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