Stimulus Package: Tax Cuts Versus Spending

[MaxBuck]

Originally Posted by Jake

Our money is only worth what we think it is worth, because there is nothing behind it of value.

Anyone's money is only worth what the world's currency markets think it is worth, since nobody's money has anything truly tangible behind it. All currency is fiat currency today.

This boat sailed quite a while ago, Jake.

[sandgk]

Originally Posted by buckeyegrad

Different numbers, same themes: Michelle Malkin ? New CBO report echoes earlier analysis: ?Stimulus? too sloooow to stimulate

Of particular note:

Sorry - but I don't read Michelle Malkin when she goes all porno with slow stimuli

[jimotis4heisman]

Originally Posted by MaxBuck

Anyone's money is only worth what the world's currency markets think it is worth, since nobody's money has anything truly tangible behind it. All currency is fiat currency today.

This boat sailed quite a while ago, Jake.

geithner would beg to differ. especially in regard to china (joke)

['BusNative]

Originally Posted by Jake

Spending money we don't have is a big part of the problem, not the solution. Government spending can only occur in three ways:

- taxes extracted from an already sagging economy. That's like poking a hole in a bucket, holding a glass under it, filling up the glass, dumping it back in the bucket and thinking you're going to refill it.

- printing more fiat currency. Our money is only worth what we think it is worth, because there is nothing behind it of value. Diluting the currency is not a recipe for economic recovery.

- more debt, assuming anyone wants to invest in America right now. Borrowing money from ourselves is just kicking the can down the road. We the People will have to pay that debt, someday.

No nation has ever taxed itself into prosperity. Let's not repeat the mistakes that made the Great Depression last so long, Keynsian Economics and the misguided notion that government can rescue the economy. Governments cannot create wealth, they can only extract it and respend it.

Putting quarters into a washing machine, washing our own clothes, then taking the quarters out of the machine is a zero sum game. Doing it on a larger scale is still a zero sum game.

Considering both spending and tax cuts are essentially "spending" in any of the iterated forms of the stimumlus plan, this post is largely moot. Additionally, since we know some combination of the two are definitely going to be included in the plan, it's not worth trying to make a theoretical argument for a differing economic approach.

BUT, on the point of tax cuts, it is my understanding that a quorum is building behind the notion that tax cuts will be a hugely impotent response to the current situation, most notably because the money saved will NOT immediately enter the economy, except for perhaps the paying down of debt (which is essentially saving). Conversely, works programs (for lack of better terms) will require new purchases of goods and services and create (in the case of infrastructure) new tangible assets.

To the point of our currency - would you have us go back to the gold standard?

['BusNative]

Originally Posted by buckeyegrad

Different numbers, same themes: Michelle Malkin ? New CBO report echoes earlier analysis: ?Stimulus? too sloooow to stimulate

Of particular note (additional note: this is not Malkin speaking, but the deputy director of the CBO):

A response to this CBO report:

Making Sense of CBO’s Stimulus Projections

Making Sense of CBO's Stimulus Projections

By Scott Lilly | January 26, 2009

"Where the action is in federal budgeting" is how the Budget Analysis Division of the Congressional Budget Office describes itself on the CBO website. "Because the division has a high ratio of analysts to managers, those analysts enjoy a high degree of individual responsibility, challenge, and visibility,? the division explains. "The estimates produced by the Budget Analysis Division play a critical role in Congressional actions that affect the nation and the world."

The truth of those comments became very evident last week when CBO became the focus of media attention after an unofficial analysis of a portion of the economic stimulus package was leaked to reporters. With regard to appropriation spending of $355 billion out of the proposed $825 billion economic stimulus package for which the unofficial analysis was performed, the role of CBO is largely one of forecasting how quickly funds provided will be spent. Some programs ?spend out? in a matter of days while expenditures for more complex government activities may take 5 to 10 years.

Projecting this "spend out" is a task requiring the weighing of numerous variables as well as the exercise of a considerable amount of subjective judgment. In the end, spending forecasts are subject to most of the uncertainties contained in weather forecasts, economic forecasts, and even Super Bowl predictions. But what is clear from the leaked analysis (and will probably be evident in the official version soon to be available) is that the watch word of this stimulus effort - "shovel ready," meaning ready to be spent now - does not correspond to any key on the keyboards connected to CBO computers.

Instead, the CBO analysis is based almost entirely on a review of historical data on program performance, giving little or no weight to assurances from the White House, federal agency directors, governors, and state officials that normal operating procedures will not be followed, and that funds appropriated for programs in this stimulus package will flow much more rapidly than in the past. To be fair to CBO, it is not unusual for program managers to be overly optimistic about how quickly important initiatives will get underway. Yet there is ample evidence that state and local officials have been preparing for months for the rapid obligation of these funds. It is also clear that officials at all levels have made strong and credible public commitments to cut through red tape to expedite these expenditures.

It would seem that those commitments should count for some shortening of the time frame for the flow of federal money. CBO, however, is forecasting that only 40 percent of the appropriations money will flow in the first 18 months, and slightly less than 70 percent in the first 30 months.

It is particularly hard to defend the CBO forecast on the flow of "shovel ready" highway funds. The projection for the flow of highway funds from this package is much slower than the projection made by CBO for the flow of funds under the same program only four month ago in the stimulus package Congress attempted to pass last fall. CBO predicted 77 percent of that money would flow out of the Treasury in the first 24 months. Now they are projecting that only 45 percent of highway money will flow over a 24-month period.

Whichever figure is correct - if either prove to be - the disparity between the two estimates seems to demonstrate that CBO highway estimates will have been seriously out of line at least 50 percent of the time. Certainly the American Association of State Highway and Transportation Officials believes this to be the case. AASHTO released a statement last week denouncing the most recent CBO estimate:

AASHTO Director John Horsley said that he had surveyed state officials as recently as January 16 to determine if they could have 50 percent of the $30 billion provided for highways in the proposed stimulus bill under contract within 120 days, as provided in the House bill. He said that they responded, "Yes, we can!"

But what if CBO is right in its current forecast? What if many of the appropriated funds in this package do flow more slowly than federal and local officials anticipate? The first point that needs to be considered is that the $355 billion contained in the Appropriation Committee portion of the package represents only 43 percent of the total package and virtually all of the slower spending programs.

Nearly all of the remaining $470 billion, which will be made up of tax cuts, Medicaid payments to states, and unemployment benefits, is expected to flow from the Treasury over the course of the next 12 months. The $108 billion contained in the appropriation segment of the package that CBO projects to be unspent at the end of 2011 totals only 13 percent of the total package.

It is also important to recognize that contrary to the representations of some critics of the program, job creation under most programs in the package will significantly precede the outlay of federal funds, which is what the CBO data projects. The U.S. Highway Administration, for instance, allocates funds to the states based on a federal highway formula, but states do not actually get reimbursed from the U.S. Treasury (creating an "outlay") until after the contracts have been signed, employees have been hired, and a phase of the construction project has been completed...

cont.

['BusNative]

Along the same lines of JO's post earlier:

Stimulus plan includes billions for new construction and jobs | Washington Bureau

Stimulus plan includes billions for new construction and jobs

January 27 2009
By BILLY HOUSE and AMY DOMINELLO
Media General News Service

WASHINGTON -- The ambitious $825 billion economic stimulus plan the House will vote on Wednesday blends new spending on everything from construction projects to unemployment aid with tax cuts for both individuals and businesses...

...Unemployed workers
-- Helps an estimated 8.5 million people keep health care coverage after job losses.
-- Provides a 65 percent subsidy for COBRA health benefit premiums for up to 12 months for people who involuntarily lose their jobs between Sept. 1, 2008, and Dec. 31, 2009. COBRA currently provides temporary coverage but is expensive. A typical family premium costs over $1,000 a month.
-- Extends through December 2009 unemployment benefits that are scheduled to phase out at the end of March for 3.5 million unemployed workers.
-- Increases unemployment benefits by $25 a week for 20 million unemployed workers.
-- Increases food stamp benefits by more than13 percent.
-- Increases funding by more than $1 billion for other food assistance, such as afterschool meals, food for the homeless and hungry and Meals on Wheels.
-- Provides more than $4.1 billion for job training and related programs.

Infrastructure
-- Creates an estimated 1.5 million jobs, about half the jobs the plan proposes.
-- Rebuilds roads, bridges and public buildings as well as cleans up the environment.
-- States have told Congress they have 5,100 projects ? costing $64 billion ? that could be under contract within 180 days. States must designate half the highway and transit money for projects within six months or the Department of Transportation can reclaim the funds.
-- Sets aside $10 billion to build mass transit and rail
-- Upgrades federal buildings and makes them energy efficient, saving taxpayers $2 billion a year.
-- Modernizes water systems and strengthens environmental cleanup.

Health care
-- Saves or creates an estimated 250,000 jobs in health care and education.
-- Provides an estimated $87 billion in additional federal matching funds to help states maintain their Medicaid programs in the face of massive state budget shortfalls, over a two-year period. (Medicaid is the health insurance program that serves low-income families and individuals, as well as people with disabilities, pregnant women and those in nursing homes.)
-- Includes $600 million for the training of doctors, dentists and nurses.
-- Provides $3 billion for a new prevention and wellness fund.
-- Includes $1.5 billion for community health centers.

Energy
-- Creates more than 500,000 energy-related jobs.
-- Includes $500 million to train workers for green-collar jobs.
-- Provides $11 billion to improve electricity systems? efficiency and reliability through a ?Smart Grid Investment Program.?
-- Creates temporary loan guarantees for up to $80 billion for renewable energy power generation and electric transmission projects.
-- Encourages states to update energy-efficient building codes and regulatory policies and provides new modernization repair programs for schools and colleges.
-- Provides consumer rebates to buy energy-efficient appliances.
-- Expands tax credits through 2010 for purchases such as new furnaces, energy-efficient windows, doors and insulation.
-- Expands aid per household for more than 1 million modest-income families who improve energy efficiency in their homes through weatherization.

Scientific research and space
-- Creates more than 949,000 jobs through $40 million in investments in IT network infrastructure.
-- Provides $10 billion for scientific research, including investments at the National Science Foundation. That would include supporting 3,000 new NSF research awards and immediately put to work 12,750 senior scientists, as well as undergraduate- graduate- and post-graduate level researchers.
-- Provides $600 million to National Aeronautics and Space Administration (NASA), including $400 million to put more scientists to work on climate change research.
-- Includes $400 million for the construction and development of major research facilities that perform ?cutting-edge? research.
-- Includes $2 billion for the National Institutes of Health, including $1.5 billion for expanding biomedical research.
-- Provides $6 billion for extending broadband and wireless services to underserved communities.

Education
-- Saves or creates an estimated 250,000 jobs in education and health care.
-- Provides $20 billion to modernize schools and colleges nationwide.
-- Increases tax credits, grants, work-study programs and loans for students.
-- Provides Head Start $2.1 billion in additional funding.
-- Includes $2 billion in grants for childcare for low-income working families.
-- Establishes a fund to prevent education cuts and layoffs in states.

Tax credits and cuts for individuals
-- The proposal claims 95 percent of workers would receive a refundable tax credit of $500 per worker or $1,000 per couple filing jointly. The credit phases out at $100,000 for single filers and $200,000 for couples filing jointly.
-- Expands the child tax credit and the earned-income tax credit.
-- Enhances the current $7,500 credit for first-time homebuyers by removing the repayment requirement.

Tax incentives for businesses
-- Allows businesses to write off 90 percent of losses incurred in 2008 and 2009 against taxes assessed over the past five years. Businesses that receive bailout funds would be ineligible.
-- Helps businesses recover costs of new capital investments.
-- Doubles the amount small businesses can write off for capital investments and for purchase of new equipment in 2009.

Tax incentives for energy efficiency
-- Extends and expands tax credits for energy-efficient home improvements.
-- Extends tax credits for producers of alternative-energy sources.
-- Creates a tax credit for alternative-energy research and development.
-- Increases incentives to install alternative fuel pumps.

['BusNative]

Just some more links, as promised:

Give us bangs for our bailout bucks - Times Online

January 27, 2009
Give us bangs for our bailout bucks

America is getting a raw deal as it pumps $700bn into shoring up its banks, argues Joseph Stiglitz

In Davos, the scene is much more sombre than a year ago, and totally different from two years ago. Then, there were relatively few purveyors of doom - I was among them.

In a talk in 2007, I had to apologise: my worries of the past two years had not been realised. Either the theories and evidence on which I based those forecasts were flawed, or the problems that I foresaw - the bursting of the housing bubble, with its attendant disruption to markets - would be even worse. As the bubble had grown larger, so had the consequences of its bursting. I, of course, thought the latter interpretation more likely. Events have borne that out.

But even last January there were hopes that the real economy would be spared. That was unlikely: finance is the lifeblood of any economy. With banks haemorrhaging, it was going to be hard for them to keep providing the credit needed.

But there were deeper forces at play. America had been sustained by a consumption boom; its household savings had fallen to near zero. With the bursting of the bubble, Americans would have neither the desire nor the capacity to continue spending at the rate they had. And the likely size of the cutbacks in consumption spelt serious problems...

Stimulus: Spend or cut taxes? - Jan. 19, 2009

Most economists agree that both are needed. The debate comes when they ask how split it.

By Alyssa Abkowitz and Lawrence Delevingne
January 19, 2009: 9:54 AM ET

NEW YORK (Fortune) -- As President-elect Barack Obama prepares to take office, the incoming administration and Congress continue to shape a massive stimulus package to help the struggling economy.

The proposed $825 billion plan mixes government spending with tax breaks in the hopes of raising gross domestic product by 3.7% and saving or creating 3.3 to 4.1 million jobs by the end of 2010.

While the final breakdown of the package remains to be seen, much of the debate centers on the effectiveness of government spending versus tax cuts as means of reviving the economy. Currently, the plan includes roughly $550 billion in spending and $275 billion in tax cuts.

Turn on the money tap...

Most economists support the emphasis on spending, saying government expenditure does more to boost gross domestic product, a key indicator of fiscal health.

In other words, spending delivers more bang for the buck because each dollar paid to a worker building a wind turbine, for example, is then re-spent on groceries or clothing, causing a fiscal ripple-effect. Conversely, a worker might save a third of the money he is given in a tax cut, with some of the spending going toward imports, which would also reduce the stimulus to GDP...

[Buckeyeskickbuttocks]

I saw a R this AM on the Today Show commenting that the package was being supported more by Rs than Ds at the moment. I'm sure some of that was grandstanding, but I was reminded of some other comment I read on here about how "Cons will be surprised at how moderate Obama turns out to be, while Libs will be all upset that he's not the liberal they thought he was"

I guess we'll see....

[Sdgobucks]

Im not so sure it really matters. The government is going to be throwing money into the system either way via the deficit. They can throw it to working people via tax cuts, or they can throw it to non working people via social programs. Either way the effect is the same: more money in the system, and a TEMPORARY boost in the economy.

Of course there is always the point that if we are going to have to trash the value of the dollar for a temporary economic boost, we might as well re-do the aging infrastructure while we are at it.

['BusNative]

Originally Posted by Sdgobucks

Im not so sure it really matters. The government is going to be throwing money into the system either way via the deficit. They can throw it to working people via tax cuts, or they can throw it to non working people via social programs. Either way the effect is the same: more money in the system, and a TEMPORARY boost in the economy.

Riiiiiight - because working people never benefit from social programs.

[Tresselbeliever]

Originally Posted by 'BusNative

The stimulus plan is the biggest issue going right now in government, and the biggest question about the package is

I think the biggest question is whether the amount of fund-raising required will send waves of deflation around the world and cause further collapse in asset prices.

[fourteenandoh]

don't have much time right now, but i wanted to throw out two things.

i watched the press briefing today and the press secretary referenced the CBO report a few times. if it doesn't exist why is he referring to it? what gives?

what's up with trying to mandate that all infrastructure projects done with this stimulus money must be done with USA made steel? have they not read anything about the great depression?

[Best Buckeye]

Originally Posted by 'BusNative

Riiiiiight - because working people never benefit from social programs.

Yup , cuz working people just pay for the social programs , not benefit from them.

['BusNative]

Originally Posted by fourteenandoh

don't have much time right now, but i wanted to throw out two things.

i watched the press briefing today and the press secretary referenced the CBO report a few times. if it doesn't exist why is he referring to it? what gives?

It does exist - its relevance is debatable (see above)

what's up with trying to mandate that all infrastructure projects done with this stimulus money must be done with USA made steel? have they not read anything about the great depression?

I think the answers to this one are self-evident and numerous

['BusNative]

Originally Posted by Best Buckeye

Yup , cuz working people just pay for the social programs , not benefit from them.

link?