Income Redistribution: Economic ‘stimulus’

(The Patriot Post) - Now that foreign and domestic markets are trembling at the possibility of a recession in America, President Bush, Federal Reserve Chairman Ben Bernanke and congressional leaders all agree that the time has come to create an economic-stimulus package to revive the economy. In a display of surprising bipartisanship (or is that “buy-partisanship”?), “House leaders and the administration reached tentative agreement today on a roughly $145 billion economic stimulus that would quickly send payments to poor and middle class workers while offering businesses one-time incentives to invest in new equipment and write off tax losses,” The Washington Post reports.

Both sides gave up important demands. Republicans agreed to tax rebates of up to $1,000, even for families who don’t earn enough to pay income taxes to begin with. This is otherwise known as “income redistribution.” Democrats, on the other hand, gave up on extending unemployment benefits and food stamps—for now. As for the rebates, again The Post: “Under the deal, nearly everyone earning a paycheck would receive at least $300 from the Internal Revenue Service. Most workers would receive rebates of $600 each, or $1,200 per couple. Families with children would receive an additional payment of $300 per child. Workers who earned at least $3,000 last year—but not enough to pay income taxes—would be eligible for $300.”

As with past tax rebates, the idea behind the scheme is that returning this money to taxpayers will lead to a rush of consumer spending that will boost the economy. President Bush used this option in 2001, but there is little evidence that the $300-$600 payout actually was what turned the country around. In fact, it was the tax cuts that revived the economy after the 2001 recession, not the tax rebates, that ended up being put into savings and used to pay existing expenses. Rather than falling back on political parlor tricks that have never been proven to work, Congress should make the Bush tax cuts permanent. Lower taxes are what keep the economy growing, no matter how you crunch the numbers.