The President's Arguments for Tax Rebates are Bull

Recently the President has been moving around the country promoting keeping his tax refund policies in place. It is a terrible idea. His argument is that having tax rebates charges up the economy. This is a result, he says, of causing people who get money back to spend, thus helping stimulate domestic business and jobs.

His idea is not logical for at least eight reasons:

• The claim that all the money sent out in rebates will find its
  way back into the economy rather soon is not correct.
  
  
• The premise that money that is returned to taxpayers will all stay in the U.S. is
  flawed (consider the 15 billion dollar trade deficit with China and
  the Billions sent overseas for oil).
  
  
• The idea that the government can afford this at a time when there
  is huge national deficit, a war, and recovery from a Gulf Coast disaster
  is incorrect. Why would Americans choose to get back some small amount
  of tax money in exchange for an out of control national debt and the
  subsequent consequences.
  
  
• The suggestion Americans can hang onto this money is wrong. Any money
  Americans will save in taxes will go for rising interest rates because of
  the growing national debt.
  
  
• The argument that the tax refund helps support American businesses and provide jobs is flawed, because jobs
  are being shipped out of the country, or people are being brought in
  from out of the country to work.
  
  
• The argument that the tax refund helps build American business is wrong,
  because it will simply help increase the millions of dollars in CEO and CFO
  bonuses (which will be awarded to wealthy people who get most of the
  tax refund money from the government anyway).
  
  
• The idea that the government can give this money back because it is
  now operating so efficiently under the Bush administration that it is
  saving billions is wrong, because government is more inflated and
  wasting more money than it has in decades.
  
  
• The claim this tax cut is somehow good for children is crazy, because
  the children will inherit the heavy future burden of paying for it with
  lots of interest accrued to the huge national debt.
  
  
  

What is true is that this tax cut talk is a common package
of electioneering bull and Americans are catching onto the tactic. Even in 2001, when this subject came up, conservative economic observers were disagreeing with the President’s claims of what the rebate could do for the economy. Writing in the Conservative publication
National Review Online, Larry Kudlow said the rebate plan was not the right approach to jump
starting the nation’s economy: “A 1970’s-style rebate, however, is a waste of resources that could actually make the patient worse.”

A 1975 tax rebate provided a 10% check return to taxpayers up
to a maximum of $200. A subsequent report by the congressional Joint Economic Committee in 2002 examined the results of that rebate and cited studies showing that in
the last three quarters of 1975 individuals spent only 23% of their
rebate. Overall consumption increased only 12 cents to 25 cents for
every dollar of the rebate.

In a climate where some significant part of that 12 to 25 cents would
find its way into foreign banks or in the pockets of corporate executives,
the whole rebate/economy boost argument falls apart significantly.

The idea of the rebate reflects Keynesian economic theories
which have been widely criticized. The 1975 rebate did not jump
start the U.S. economy. Subsequently, Japan several times tried a
similar jumper cable approach with similar flat results.

The rebate comes from a Republican administration that has
argued increasing the deficit will not increase interest rates.
We can see how correct that has been. The rebate is a bad idea
and it’s time to let it go.