Friday, January 18, 2008

Bread and Circuses (and Tax Rebates)!

Rebate checks sound great. Return money to the people who earned it, and they’ll spend it. That helps businesses, which benefits their employees:

"Letting Americans keep more of their money should increase consumer spending," Bush said.
Get it? But there’s a catch:
Aids have said Bush does not believe the stimulus spending should be offset — or paid for — by any tax or spending changes elsewhere.
That’s troubling, especially since the Democrats are unlikely to force Republicans to embrace a pay-go scheme. Indeed, it appears that we finally have bipartisan cooperation, albeit in the form of unchecked fiscal irresponsibility:
While Bush focused solely on taxes, Democratic and Republican leaders in Congress have been working on a broader package that also would include a temporary increase in food stamps and an extension of and perhaps increase in unemployment benefits.
Q: If the government increases spending, and simultaneously rebates the tax money that pays for spending – what happens?

A: Deficit!

Worse than a deficit, increasing spending combined with decreasing tax revenue – all during a recession – will have a snowball effect. As the economy worsens the government will spend a larger chunk of GDP, which worsens the economy thus leading to more spending – ad paucitatem.

Extensions and perhaps increases in benefits cost money. That much is certain. The only question is when we’ll pay the bill.