Another Tax Rebate? Give It to the States Instead

Nothing could be a greater waste of taxpayer dollars than the proposal floated by the Obama administration to give every household another tax rebate (supposedly $500). In fact, it’s probably one of the few things that conservative economist Bruce Bartlett and I would agree on. Last March I wrote:

I agree: most won’t spend, unless they have to (and any whose income is that bad needs long-term financial help–$600 isn’t going to cut it). While I disagree with Bartlett’s suggestion to help Fannie Mae buy up some of the bad loans, he is right that it won’t do much in the way of stimulus. What would help is if the $300-$1200 per household were split between the municipality and the state in which that household resides.
Most local and state governments are suffering from budget shortfalls due to property tax revenue decreases and lower sales tax revenues. Most also have outstanding deferred maintenance problems. If given the money, they will spend it–all of it.

This was before most states announced that they would be hemorrhaging money.
Other than the porn industry, it’s not clear that the previous rebate did all that much to improve spending. Giving money to cash-strapped local and state governments wouldn’t be a stimulus package as much as a much-needed Keynesian firewall. The economy can’t improve while governments are cutting funding and laying off workers. This ‘stimilus’ will also be rapid: by restoring budgets for ongoing projects and existing salaries, there is literally no lag time.
In a sane country, this would be obvious, but expect conservatives and Republicans to oppose this. Not only have they undergone full-immersion baptism in the libertarian Kool-Aid, but a wrecked economy might be good for them politically.
Party before country….
Related post: The Krugman thinks so too:

But the numbers being reported — 40 percent of the whole, two-year plan — sound high. And all the news reports say that the high tax-cut share is intended to assuage Republicans; what this presumably means is that this was the message the off-the-record Obamanauts were told to convey.
And that’s bad news.
Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.
OK, maybe this is just a head fake from the Obama people — they think they can win the PR battle by making bipartisan noises, then accusing the GOP of being obstructionist. But I’m really worried that they’re sending off signals of weakness right from the beginning, and that they’re just going to embolden the opposition.

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2 Responses to Another Tax Rebate? Give It to the States Instead

  1. Who Cares says:

    The problem with what you are suggesting is that it is deficit spending. The only thing that it will do is postpone the problems. Which seems to be exactly what the current administration wants to do with this rebate (dump every problem at the feet of the next).
    That tax ‘rebate’ will cost people more then they’ll get back.
    If the federal government were running a surplus then this could be a way to compensate for the excess taxes received. However the federal government is running a deficit so to get this rebate money it has to cut spending in other places or increase taxes. And between the handing out and receiving rent has to be paid on the amount spent.

  2. Troublesome Frog says:

    The problem with what you are suggesting is that it is deficit spending. The only thing that it will do is postpone the problems.

    Please, don’t be shy about showing your work.

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