Tax troubles

This makes me feel as if I should join in on the tax-avoiding fun!

Two Thoughts on the Economy

1. For reasons unknown, I have begun to read Rush Limbaugh's stimulus proposal. I haven't gotten far, but in the beginning he sets up a sharp contrast between the "Keynesian" (i.e., Democratic) solution of funding "shovel-ready" projects and the "supply-side" (Republican) solution of tax cuts.

My knowledge of economics puts me in a better place to discuss the Republicans' proposal than the Democrats'. Tax cuts will stimulate the economy to some degree - the more progressive the tax cut, the more short-term relief is brought about. This is because poor people spend the highest percentage of their income, while wealthier people tend to save/invest it. So tax cuts to middle- and upper- class folks will largely be saved, or used to pay down individuals' debts.

So my question is - assuming (and I think I can do so safely) that the average American currently has ballooning debt, is it possible that the tax cut route might actually be better, in that private debts (mortgages, credit cards) could represent a coming crisis that needs to be averted now? Just a thought.

(And I should add, it's entirely possibly that such a proposal wouldn't actually result in Americans making a net payment on their debt, or at least the right Americans paying down the right debts.)

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2. This second thought it much more political than economic, but it's something to watch for: the Republicans need to carve out a voice ASAP if they want a shot at the 2010 elections. So they're going to have to find ways to oppose the Democrats. Thus far, they haven't had a lot of luck.

But with the economy being the number one issue, here's an argument you're going to hear more and more as election day comes ...

Let's say you're God. Let's say unemployment is currently 8%. Let's say without action, it will be 14%, with the Republicans' stimulus it will be 12%, and with Obama's stimulus it will be 10%.

So the Democrats say, "Wow, look at that, we saved a whole lot of jobs!"
So the Republicans say, "Wow, look at that, they didn't create any jobs. In fact, they lost jobs!"

I guess it would have been a whole lot easier for me to say "There's going to be an upcoming argument about jobs saved vs. jobs created." Oh well, you get the point.

That's a lot of money

Christopher Buckley, or C-Buckz, as I'm tempted to call him (just kidding, although that really makes me wish he'd marry Star Jones so she could be Star-Buckz - sorry, it's been a long week) has an article at the Beast trying to put a handle on how much the $1.2 trillion dollar deficit really is. And while I like what he does, he's taking a macro approach, and before I had read it I was already planning on taking more of a micro approach.

Let's start with Bernie Madoff. One fraud case, 50 billion dollars. That's a lot of money. A whole lot. It averages out to about $170 for every man, woman, and child in America.

Now, you didn't lose $170 in the Madoff fraud case, which you're probably pretty happy about. And that makes you like most Americans - almost all of them in fact. But for every American who didn't get ripped off by Madoff, that means that one of them who did lost an extra 170 bucks. Put another way, if you put all Americans on one side of a giant room with a big line down the middle, then for every single person that got to cross the line to the "didn't invest" side, some investor would have to pay $170. Just think about how long that would take ...

Now think about the stimulus. The tax rebate stimulus in early 2008 was $150 billion. Then TARP was $700 billion. Now Obama proposes another $825 billion. That adds up to $1.675 trillion (Just for fun: $1,675,000,000,000) There are 138 million taxpayers in the United States, so this amounts to $12,140 per taxpayer. That's incredible! Essentially, the federal government is forcing taxpayers to band together and go into (an additional!) $12,140 worth of collective debt each (albeit at a low interest rate, and of course the burden is not evenly distributed).

The entirety of the debt when Clinton left office was under $6 trillion. It's now over $10 trillion with $1 trillion deficits projected indefinitely. And we haven't even gotten to Social Security et al yet.

Stimulus/Rebate

I've heard from a number of source, not the first of which is this one, the following bailout proposal. Since the $350B left to spend in the bailout package is approximately equal to two months of federal government income, just have a two month holiday on all taxes of all forms.

This sounds totally reasonable, but the same way a flat-dollar rebate (though there were adjustments to fix this) is extremely progressive, this tax holiday would be extremely regressive. Many poor Americans pay no tax at all (and I suppose the shut off valve for taxes wouldn't take away earned income tax credits ...) and of course those who pay the most in taxes would see the most benefit. So of course conservatives are all over this but don't be fooled - it's a (thinly) veiled regression of the tax code.