Economic StimulusJanuary 18th, 2008 by Steven Gardner
The president is asking Congress for an economic stimulus package so that if the economy isn’t already in a recession, that it not go there.
U.S. Sen. Patty Murray stopped by our offices Thursday and had some thoughts on whatever’s proposed. She’s on the Senate Appropriations and Budget committees and said she was called this week by Treasury Secretary Henry J. Paulson, who asked for input.
We asked whether she thought “rebates” work and she answered that it depends. She was largely non-committal on specifics, though she said removing the 2010 expiration date on the Bush tax cuts doesn’t solve the immediate problem.
The Times story linked here does get into some discussion about the efficacy of “rebates.” The intent is to get people to spend money now.
Most economists agree that tax rebates are one of the fastest ways to lift consumer spending. They also agree that stimulus measures are most efficient when aimed at low-income or middle-income people, because they are more likely than affluent people to spend any extra money rather than save it.
According to estimates several years ago by Mark Zandi, chief economist of Moody’s Economy.com, the measures that produced the biggest “bang for the buck” were increases in unemployment benefits, which produced about $1.73 in additional demand for every dollar spent. Tax rebates to all citizens generated about $1.19 for every dollar spent, while reductions in tax rates produced only 59 cents per dollar.
I’d argue, first of all, that they’re not really rebates. A rebate means you paid, for example, $100, and will get $70 back. Technically it could be true if the money the government sent you was because of a tax cut. If there’s no tax cut, the $1,600 is more like an advance, because you’ll have to account for it at the end of the year.