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A Stimulating, Stimulus Debate: Part 1

Posted Feb 01 2009 12:00am
The Debate

In light of the current economic stimulus debate going on in Congress, The Hay Sayers thought we would join in the discussion.  Over the next few days we will be debating back and forth on different points.  Please tune in to read that day’s conversation.

Kareem:

After reading portions of the proposed spending bill, I have questions about the true effectiveness of this legislation. There are several spending proposals that don’t make sense to me.  Here are a few as an examples:

$20 billion for the Food Stamp Program

$140 billion Income tax credit

Food Stamps for some reason have been deemed able to help stimulate the economy. I am still trying to figure just how giving money to people for them to eat is a way of making the economy stronger.  While this is a useful program, this money should be appropriated through normal channels such as the HHS budget that’s done annually.  Giving money to an existing program to do carry out a function that it has been doing for over 40yrs seems to me to not be answering the question “Will this stimulate the economy”?

The biggest issue with income tax credits is that it’s nothing more than a disguise for handing checks to individuals in the name of good economics. In the case of the stimulus bill, tax credits would be given to individuals that make too little to pay federal income tax. Democrats consider this to be a tax cut, however it can’t be considered that because one has to be paying taxes in order for them to be cut. If the government wants to put money in the hands of low income earners, it should just be called what is…a cash handout to poor households.  If that’s the case, I hope those poor people who get the tax credits ask themselves “Will this stimulate the economy”?

Doug

Kareem, you make some good points, but I must respectfully disagree on your core saying.  The question isn’t, “Will this stimulate the economy,” but “How much will this stimulate the economy.”  All spending stimulates the economy.  Economic stimulation is non-existent in the absence of spending.

I’d like to start with your point on the food stamps.  I truly believe that both the food stamp program and the Income tax credit would be very effective ways to stimulate.  Let me explain.  Food stamps will be given to people who are unable to buy their own food.  Because they are buying more food than they would have, they will go to the grocery store more often, thus stimulating the grocery store.  The grocery store will then purchase from food distributors, thus stimulating the distributor and its employees. Finally the distributor will purchase from the grower or manufacturer.  Because more people will be buying groceries, the grocery stores will be able to keep employees, distributors will be able to run more trucks allowing drivers to keep their jobs.  Running more trucks mean buying more gas, buy more gas means keeping gas stations open, etc. etc. all the way to the individual grower.  The beauty about food is that it will also be a global stimulus.  Because so much of our food comes from abroad, it will also be helping the declining global economy.  So, “how much stimulus would this provide?”  The answer is a lot.

Now when it comes to the tax credit, you may be right about one thing.  The language of “tax credit” may be misleading, but the idea behind it is dead on.  Lets take a household that makes $100,000 a year.  They own their house and car.  They are probably getting a little nervous, cutting back on excess spending, and possibly building up more credit card debt than they may want.  If you give those people a tax credit of $1,000, it will more than likely go towards paying off that debt or into savings.  There is no real spending there, so it will provide little stimulus.  But, If you give $1,000 to a household that makes $50,000 a year, rents a home, and is continuously building up more debt, that money will more than likely go right back into the economy.  They will spend it on groceries, clothes, or other necessities.  If you want to see money go back into the economy the quickest, give it to the poorest person.  It will go right into a Big-Mac and not in their pocket.  So, “how much stimulus would this provide?”  The answer is a lot.

Spending needs to start, and it needs to start now.  Tax credits are good, stimulating low income households is excellent.  “How much will that stimulate the economy?”  The answer is a lot.

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