Monday, January 28, 2008

Huckanomics

You can mock Mike Huckabee all you want for fried squirrel, his populist-sounding but regressive and impractical national sales tax plan and his indefensible flag comments in South Carolina, but when it comes to the economic stimulus package agreed upon by Congress and the President, Huckabee is the only candidate with the guts to call "Bullshit!"

The plan calls for giving $100 billion in "rebates" to middle-class taxpayers, working out to about $600 per individual.

It won't help. Here's why, according to Paul Krugman: "[T]he bulk of the money would go to people who are doing O.K. financially — which misses the whole point....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."

Don't get me wrong; I'm looking forward to my $600. But when I first heard about the plan and started thinking about what I would do with the money, I decided that about 10% would go to savings and the rest would go to SallieMae and the modest credit card debt I racked up from my move last year. Maybe I'd spend about $100 on "new" stuff.

In any event, a single injection of $600 isn't going to do very much to help anyone on an individual or household basis. If you're losing your house, $600 probably won't even give you one mortgage payment. A single month's premium for family health insurance can cost much more than $600. You'd be lucky to buy two plane tickets for that amount. I'm not saying that there aren't people in this country who couldn't desperately use $600; I'm just pointing out that it won't solve anyone's long-term problems.

Even St. Barack doesn't get this one right; his stimulus package proposes a more modest rebate of $250. Though his plan includes more low-income people, I don't see how $250 is meaningful help, even to the desperate. His argument for the lower dollar amount is that it could be disbursed more quickly, but the real obstacle is that the IRS is presently gearing up for tax season. It doesn't matter (much) what the size of the check is; the IRS can't get us our "rebates" until June.

So the proposed "rebates" are too small to be of any particular individual aid and are mostly going to people who won't actually pump it into the economy. But guess what else is wrong with this idea?

“The problem I have is that what we are really doing is borrowing about $150 billion from the Chinese, which is where this money has got to end up coming from." That's Mike Huckabee, speaking recently to CNN, echoing the comments he made at the South Carolina Republican debate. So it's not actually a "rebate"; Congress is not returning some of our tax dollars, they're taking out a loan in our names to pander to us in election season. That $600 I'm "getting" in June is not a refund; I have to pay it back. To China. With interest.

Huckabee also astutely points out the trade deficit, noting that so many products people might choose to buy with their "rebate" come from China. “So I have to ask,” he added, “whose economy is being stimulated the most?”

The former Arkansas governor argues -- and I agree -- that if the government is going to spend $150 billion, they should start some kind of public works project. Pay that money to American companies, who will pay (and maybe even hire new) employees and purchase goods from American companies, and in the end the American people will get something tangible out of the deal (Huckabee recommends the national infrastructure, like bridges and highways). So the employees of those companies get put to work, get paid, and then they'll spend that money right into the economy.

Treasury Secretary Henry Paulson tried to rebuff Huckabee's claims, saying that the point of the stimulus package is to get money into the economy right away, and a public works project would take a long time to get going. You could say that's a valid point, except that the "rebate" checks aren't coming for five months and aren't going to help, anyway. I'd rather have a plan that worked (even if the effects weren't felt for a year) than a boondoggle that kicked in immediately.

Note also that Paulson did not try to rebut Huckabee's claims that it's all just a loan from China.

I am not stimulated.

6 comments:

Gino said...

but would you be more stimulated with $20,000?

i tongue-in-cheeked this one last nite.

its a dumb idea.
and it has bipartsan support, further proof that its a dumb idea.

Ian said...

Great article. Yes, I'm very impressed with Gov. Huckabee's take on the stimulus. However, I think you're giving the FairTax an unfair shake.

Review some research I posted at Slate. Gov. Huckabee did an excellent job of discussing the way it would facilitate the pursuit of wealth for families, and in a CNBC interview, discussed its importance for business and global trade.

Andy said...

Ian: this article in Slate did give me significant pause for thought a while back, and I agree with the Governor that our tax code needs a radical overhaul and simplification.

Full disclosure: I am not an economist or a tax expert by any stretch of the imagination, but I do coincidentally work in the tax department of a Fortune 500 company so I've heard some thoughts on this plan and formulated my own.

I think it is highly unlikely that a 23% tax can pull in the income necessary to run the federal government; it may require a rate as high as 40-50%, which then wouldn't be a net tax benefit to anyone and would be an adverse development for a majority of the country. I think it would be particularly hard-hitting for the bottom rungs of the economic ladder, where people live paycheck to paycheck and would then be significantly taxed on their entire income. I also worry that a giant national sales tax would give rise to a thriving black market economy.

I think he's on the right track, that what we need is a simplification of the tax structure. The idea of an equal burden is attractive, but when you look at the math a "flat tax" will disproportionately burden lower-income folks. Simply put, rich people can afford more. I think unearned income (capital gains, inheritance, lottery) should be taxed at a significantly higher rate. I think the corporate tax rate could be reduced if a lot of the loopholes were closed and some of the big companies were forced to pay their share. I am totally in favor of progressive taxation, and while I think Huckabee means well, I don't think it will ultimately have the effect he desires.

JereNYC said...

What puzzles me is that every time the question of funding public transit comes up, it's always something that is too expensive and too necessarily expansive to be realistic (meaning that any project would have to be utterly enormous to be effective). And yet, here's $150 billion for miniscule tax rebates.

I wonder if you could build a subway system in Dallas for that? Or expand the limited one in LA? Even cities with great public transit like New York and Chicago have huge holes with great swaths of the city un- or underserved. And these systems could definitely stand to be modernized, especially New York's over 100 year old system that shuts down every time there's a heavy rain.

Public transit systems not only are great public works projects in and of themselves, but make everyone's lives easier. And the effect on the environment could be massive.

kr said...

its a dumb idea.
and it has bipartsan support, further proof that its a dumb idea.

heh ;).

DJRainDog said...

Here again, I find myself sighing and agreeing with Gino. This candy-man-plan has the support of both parties, because they all see that it contains absurdly tiny elements of good which will appear to lemmingMerikkka as though something useful and good is being done by the lazy fucktards in Congress. Of course, it's just nose-picking and dick-twiddling that will make no substantive improvement, as usual.