Economically Illiterate Paul Krugman Upset That Rebates Aren’t Going To People Who Don’t Pay Taxes
See, rather than a tax refund, Krugman would like to “stimulate the economy” by just sending out government checks to poor people. Sort of like what we’re already doing with welfare, except I don’t think I need to remind you that welfare checks aren’t exactly stimulating the economy.
Aside from business tax breaks — which are an unhappy story for another column — the plan gives each worker making less than $75,000 a $300 check, plus additional amounts to people who make enough to pay substantial sums in income tax. This ensures that the bulk of the money would go to people who are doing O.K. financially — which misses the whole point.
The goal of a stimulus plan should be to support overall spending, so as to avert or limit the depth of a recession. If the money the government lays out doesn’t get spent — if it just gets added to people’s bank accounts or used to pay off debts — the plan will have failed.
And sending checks to people in good financial shape does little or nothing to increase overall spending. People who have good incomes, good credit and secure employment make spending decisions based on their long-term earning power rather than the size of their latest paycheck. Give such people a few hundred extra dollars, and they’ll just put it in the bank.
In fact, that appears to be what mainly happened to the tax rebates affluent Americans received during the last recession in 2001.
This is absurd on so many levels I don’t even know where to begin.
For one, let’s use our common sense: When it comes to blowing a tax rebate check or saving it/paying off debt who is likely to do rich? Is Krugman really expecting us to believe that a low-income citizen, who likely has debt and is living paycheck-to-paycheck, is the sort of citizen most likely to go out and blow a rebate check on a television? Does he expect us to believe that a more affluent citizen, who generally has his/her debt and income situation squared away, is less likely to use this one-time check for a one-time big purchase?
I think he has things backward. I think the low-income citizen is more likely to save this rebate check as a buffer against future financial shortcomings and/or use it to pay of existing debt. Your higher income people are the ones most likely to use the check for a quick vacation, or for a shopping spree. this is because the lower income person likely needs the money. To the higher income person it’s disposable.
But let’s also talk about the actual economic impact this tax cut is likely to have. Even if every single penny of it gets spent in our economy, are we really to believe that’s going to have a lasting impact? A one-time, short-lived increase in spending? Please. If we want real economic stimulus we need to lower the overall burden of taxes, and that means cuts in tax rates. Not only would that be long-term tax relief (your yearly tax bill would be smaller, so more money in your pocket year after year) it would make the tax relief proportional to how it was paid in.
Those who paid a lot in would save a lot. Those who paid little in would save little.
And yes, I know. That’s “tax cuts for the rich.” But I’d ask how exactly we give tax relief that isn’t skewed to “the rich” when we live with a tax code where “the rich” pay the vast majority of taxes? If we’re going to send “tax rebates” to people who didn’t pay those taxes in the first place (or paid very little of them) shouldn’t we at least be honest and call it what it is? Nothing more than a check from the government to buy off our demands for real, substantial, genuine tax relief?
