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Tax Rebate Was a Flop

August 15, 2008 by Capt. Karl

Feldstein: Tax Rebate Was a Flop

Friday, August 15, 2008 9:14 AM

The tax rebate enacted by Congress to stop a recession in the United States was a flop, Harvard University professor Martin Feldstein wrote in a Wall Street Journal editorial. Only between 10 and 20 percent of the rebate dollars were spent, according to government statistics. Some had hoped that 50 cents of every rebate dollar would be spent by consumers.

“The evidence is now in, and that optimism was unwarranted. This experience confirms earlier studies showing that one-time tax rebates are not a cost-effective way to increase economic activity,” Feldstein wrote.

With most of the rebate checks cashed, it is obvious the plan failed, he said. Consumer confidence in the economy was not boosted by this fiscal bailout idea.

Instead, the rebate plan backfired. It only added about $20 billion to consumer spending, while about $80 billion was added to the national debt.

In the second quarter, $78 billion in tax rebates were sent out. Data show that most consumers used their tax rebate checks to pay off their debt or saved the money.

“The government’s recent GDP figures show that the level of consumer outlays only rose by an extra $12 billion, or 15 percent of the lost revenue,” Feldstein said.

“The evidence of a very limited effect on spending is also clear in the monthly retail sales, a measure that is narrower than total consumer outlays because it excludes things like utility bills and rent. Retail sales were $342 billion a month in January through April and rose to only $346 billion in May and June.”

Democratic presidential nominee Barack Obama’s proposal to distribute $1,000 rebate checks to low- and middle-income workers will cost $65 billion and is likely to have the same result as the failed tax rebate plan, Feldstein wrote.

Obama’s plan is to finance those rebates with an extra tax on oil companies would only result in higher oil prices, he said.

Since the government’s plan flopped, Obama’s plan will also fail to stimulate the economy, Feldstein wrote.

The rebate checks would do “little to raise consumer spending and stop the decline in employment. If the past is an indicator of what would happen, the $65 billion Obama proposes to spend on this plan would raise consumer spending by only about $10 billion, or less than one-tenth of 1 percent of GDP.”

Posted in Democratic Party, Income Taxes, Senate, U.S. Government, congress | Tagged Barack, checks, consumer, consumer spending, economy, Feldstein, GDP, lower-income, middle class, middle-income, Obama, rebate, rebate checks, spending, stimulate, Tax Rebate | 3 Comments

3 Responses to “Tax Rebate Was a Flop”

on 15 Aug 2008 at 12:57 pm1 Tax Rebate Was a Flop : blog lowerautoinsurance

[...] Original post by captkarl [...]
on 15 Aug 2008 at 1:57 pm2 pragmaticallypolitical

While it would’ve been great if everyone took their rebate check and bought a new television, they did spend something.
Of the 80-90% of relief that wasn’t directly spent on consumer goods, it did go somewhere. Maybe it went to paying off credit card debt. Maybe it went into stocks/mutual fund/savings. At the end of the day, the money didn’t go into a mattress (and if it does, it fights inflation!). Every penny went directly or indirectly back into the American economy.
While I agree the rebates didn’t save the economy, they did improve it. Money doesn’t disappear, so let’s be a bit reserved in our condemnations.
on 15 Aug 2008 at 6:37 pm3 captkarl

Many Americans are going to loose their jobs or receive lower pay because the U.S. Congress did not place this “stimulus” money directly into an economy igniting environment.

I sure hope none of us are so foolish as to consider this as a Socialist program. It was meant to increase the availability of jobs and increase wages. The idiots in Congress squandered this money by a foolish act. They should have pin-pointed this stimulus in areas that would have worked for the intended purpose. They are brainwashing us into believing that socialist programs known as “free stuff” is good for us, when in reallity it robs everyone, especially hurting the poor. Why are so many of us so beguilded as to believe that “free stuff” helps poor people more than the availability of a real job? We all need to think on a different level. We have not been educated properly in school to be able to understand how reality works and that freedom (from Government and Government Socialistic Programs) creates wealth and prosperity for the vast majority of people.

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