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Making my way through the stimulus

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If this legislation is implemented effectively -- and there is every reason to think it will be -- then the possibilities are enormous. The decision to fuel numerous programs, as opposed to a single huge rebate or one massive tax cut, has led to the following:

1. Every department and agency in government is involved, which will energize creativity and commitment all across government.
2. The door is open to fresh thinking in every topic area: education, health care, energy, communications, transportation, housing, federal land and parks, and many others.
3. With so many involved, the creative ferment in government -- state and federal both -- can be quite stimulating.

There hasn't been so much new to hit government in thirty years. At least for a time, the private sector will be breathlessly trying to cope with the utterly new dynamics of our mixed economy.


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I do have one tax cut problem... is it really $14 a check for a single worker or is that propaganda? Because if it's that small, the tax cut is best left out and kept by the Treasury. It would mean WAY more to the country in aggregate than to any one recipient of the cut.

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Destor,

I believe that the tax cut comes in the form of a reduction in payroll taxes so the average is 14$ a week. This is actually considered an effective way to have a tax cut stimulate. The theory is that by showing up a little each week instead of as a single check workers are more likely to just spend it.

A single check mailed out is more likely to go straight to the bank or to debt (which is what happened to most of last years stimulus checks).

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I just read this short "what's in it for you?" article (funny, it's from same Friday business section as the Japan article you just replied to my about in another thread!)

From that, it looks to me like there's going to be lots of targeted tax credits and deductions--i.e., $400 tax credit for up to $75K, but also stuff like: no taxes on first $2,400 of unmeployment; first-time home buyer credit; tax deduction for state sales taxes on new car purchases (which doesn't require filing for any other deductions); people with college savings plans can apply a lot more expenses than previously allowed to withdrawals; higher ed tax credit; higher limit on untaxed mass transit commuting costs....etc.

Whether you are for that kind of thing or not, seems to be almost unavoidable with big Congressional bills, eh? One thing that certainly can be said for that is that it's stimulative for the accounting profession! Nothing wrong with keeping a long of tax preparers and accountants, I guess?! Could actually be temp employment for a lot of people, the old H & R Block temporary office stint, hah. And the tax software people will have to hire rewriters....

That's a bit of hyperbole on my part, as there's other things that don't help the accounting profession, like increased Pell Grants, $250 tax rebate checks going out to Social Security recipients, A.M.T. patch so it's not triggered...

So as to destor's concerns, looks to me like you can't really say what the average "tax cut" will be, there won't be any average tax cut, there will be all kinds of them, a lot of them designed to stimulate in certain ways.

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P.S. Strikes me after thinking about it, that many of these things rely on businesses/insitutions to be part of it. Like real estate sales people should be promoting the 10% tax credit (to $8K) thing, looking for first time home buyers, car dealers the same with the sales tax deduction, colleges with the higher ed tax credit for 2009-10, etc. (The later works like earned income credit for low income.)

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The other credits are over and above the 400$ pay cut. You are certainly correct about the accounting profession ;)

I actually support most of the breaks, except for AMT, and the housing credit. I have come to the opinion that we should stop promoting ownership. I am tired of subsidizing ugliness (suburbias and strip malls) But that is another issue.

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Hey AA and Saladin, thanks for the extra info. Now that I think about it, $14 a week is actually a good amount. I'm going to try to be disciplined and stick mine in the bank. I know, it's not stimulus but long run balance sheet improvement is a good thing too!

The real stimulus stuff is, as you guys say, in the other credits and incentives in the bill.

But Saladin, I'm curious as to why you're not for the AMT patch. I do think we need to get rid of the AMT altogether. It was meant to solve the problem of a handful of people making huge sums and paying no tax. It doesn't solve that problem anymore -- it hits people it was never intended to hit -- and the rich still get away with paying minimal taxes because the AMT is undone by our favored treatment of capital gains and dividends, which pretty much only benefits the rich.

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Its not that I am against the AMT patch- although its ridiculous that everyone goes through this stupid charade every year. Its that it was included in this bill at all. There is no way the AMT wouldn't have passed on its own. I suspect the only reason it was included is that the republicans don't won't it bundled with other measures in the future and then be forced to vote on it.
Its 70 billion that has almost a zero multiplier so its not at all effective as stimulus. So the value drops to about 700billion over two years and I am of the camp that the size is inadequate to replace the drop in demand (but will help tremendously).

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Oh, okay, I see that. Smart stuff. Thanks!

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art,

this "tax credit" they're selling for new home buyers is not a real credit if I understand it correctly. The money is just a loan that must be paid back to the government.

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John, the article that I linked to mentions this, which you might be thinking of:
Unlike a similar credit that Congress provided last year, you don’t have to pay this one back over 15 years
This one sounds like a genuine credit to me from how it's described there. I.E., you buy a house in 2009 for the first time, you get to put on your 2009 tax filing that the IRS owes you 10% of house's cost up to $8K. The income limits for eligibility are also mentioned in the article. I don't know any more than what I read there, and wouldn't be surprised if there's more "fine print" involved as the article is from Friday.

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art,

that's for the update, I learn something every day :-)

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From the link you provided:

"In 2009 and 2010, there is a tax credit of up to $400 for individuals and $800 for married couples filing their taxes jointly. You calculate your credit, subtracted from other federal taxes you owe, by taking 6.2 percent of your earned income."

Employers may end up adjusting tax withholdings on paychecks so that this credit trickles into your bank account over the course of the year. People who are self-employed can adjust their quarterly tax filings to account for the credit."

Its the employers adjusting the weekly amount that creates the 14$ meme. Although I get 7.69$ a week if I do the math, so maybe there's language for the bill when it starts that corresponds to 14. I don't know.

PS. can you tell me how to quote in blocks like you do?

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For a blockquote, just put the word blockquote within left and right carets before the text and /blockquote within left and right carets at the end of it. For italics use i and /i instead, and for bold substitute b.

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Thanks!

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Yeah, that's the way it would get to people throughout 2009 rather than in a refund check in 2010, so I imagine its encouraged. Sounded to me from the article that the $250 to Social Security recipients was going out in check form in a few montbs, but I could be interpreting it wrong. In any case, it all looks very complicated. This is a quite familiar story--the Republicans call for tax cuts and few scream "no way, don't give me a tax cut," so the Dems do a compromise by try to make them targeted for good effect, and then they can both tell their constituents they got them tax cuts. And we end up with a gargantuan tax code. Then later, both parties rail about all the "loopholes" and complexity of the tax code. But the ideas that come out of this way of doing things are not always bad--I think the earned income tax credit was brilliant. And along the lines of people like you who think the home interest deduction is questionable, there are homestead credits some states give so that low income renters get money back for the real estate taxes part of their rent goes to.

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James Surowiecki had a column about this a couple weeks ago, explaining why it's more effective to do it through withholding rather than a rebate check.

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Testing

Employers may end up adjusting tax withholdings on paychecks so that this credit trickles into your bank account over the course of the year. People who are self-employed can adjust their quarterly tax filings to account for the credit."
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1. Every department and agency in government is involved, which will energize creativity and commitment all across government.

There will be even more thrills if certain militant extremist Republican governors give us a control group by refusin’ to soil their paws with porculus:

In state after state across the country, cash-starved governors from both parties are anxiously awaiting federal dollars from the stimulus package that Congress passed just last Friday. One governor though who seems less than enthusiastic over receiving such a windfall is Louisiana's Gov. Bobby Jindal. He stated publicly that he would have voted against the federal program, and has suggested he might not take much of the funding that in the coming weeks will become available. Is Jindal posturing to burnish his conservative image nationally?

http://www.bayoubuzz.com/News/Louisiana/Politics/Gov_Jindal_Puts_Louisiana_Legislators_In_Spot_Over_Stimulus_Funding__8407.asp

I find

http://www.star-telegram.com/texas/story/1212448.html

the other guy I had in mind has already apostasised to the Great Satan. Oh, well!

Happy days.

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Reed:

You state with genuine clarity:

There hasn't been so much new to hit government in thirty years. At least for a time, the private sector will be breathlessly trying to cope with the utterly new dynamics of our mixed economy.

which is an outcome of the basic Reagan Revolution premise that he coined:

"Government is not a solution to our problem, government is the problem."

Of course as Tannehaus's essay attests that entire Right Revolution that consumed the American body politique for the last thirty years was about taking America back to before the New Deal. The issue for them was they never could actually not make government work, the New Deal government that was integrated with everyone's life. The New Deal did not complete its objective where in FDR's eyes was a cradle to grave social contract----this is not Swedish Socialism but it is a simple social contract of the modern industrial-capitalist society. Yet emotionally and philosophically the Right sought to regenerate society and politics in an reconstructionists framework. A past, mythical illusion akin to some foggy Brigadoon fantasy.

But fantasies die quickly when the realities of everyday crisis's are forefront and hostile to families and individuals. Governance must find a new sense of a contract with its citizens beyond the throws of the Cultural War that has held us hostage since 1968. Maybe in part the generation that saved the world from Fascism is now dying off each day or maybe it is that laissez faire economics finally came home to roost or all of the above but government needs act.

Here in the town that your able bodied son toiled politically the primary economic issue is not the unskilled who are long term unemployed---it is the college educated, professional level who is now stuck without a future or services. Here the ravages of anti-tax at its zenith have stripped the government to where even the County Clerk is found automatically transfer basic phone inquiries to other departments because he has had to lay off staff to the level of 1997---meaning there is no service at all. (By the way you did well with Nate!)

No government must grow beyond the ideas of a partisan fight whether it is the problem or solution and develop a social partnership of sustainable long standing solutions to real problems.

It the unapologetic ignorant ideologues of the past can't find a way to be part of the solution, let society build on their obsolescence like every age has beforehand.

Having been a former business owner and entrepreneur I know how breathless private industry can be trying to adjust and cope. Private industry needs stability and predictability, which will not be part of the global and US world for some time. Surviving will be thriving in a big sense, but understand that when I do the simple math that the asset values of our nation's wealth is now discounted a minimum of 1/5th and economic GDP activity will possibly erode by a minimum of a $1T where globally the the erosion could be as much as $3-5T this will be transformational in its own right, for one the $dollar goes much farther abroad than here so there will be a multiplier of misery and demand.

So don't rely on private industry to actually do much of the pulling, it might do some of the pushing but until real solutions are found and the place stabilizes there will be a lot of surviving.

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I keep getting this terrible feeling that economists who are putting this 'stuff' together are really flying blind, which supports the argument that an economist is a guy who can't tell you tomorrow why what he predicted yesterday didn't happen today.

One day we're heading into deflation - people are holding off purchasing large ticket items waiting for prices to come down further. The next day wholesale prices have inflated by 0.8 percent. So are we experiencing inflation or deflation.

And then there are the convoluted pro and con arguments coming from politicians and jounalists on the stimulus package and its baggage. George Will disses Rep Slaughter, "She is not the first politician to desire prosperity for the people so that they could be more bountiful taxpayers." Then another Republican is dissing the cap on CEO etc. salaries if their corporations have received bailout money. His argument is that bountiful pay means bountiful taxes and now is not the time to deprive the IRS of funds. Anyone notice a slight contradiction here?

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As someone who has many many times told people why my past predictions didn't happen. I thought you might enjoy reading this brief list of things that 90% of economists agree on.

The rest of it, well, I have always been of the mind that perhaps economics is more an art than science.

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A discussion in reference to the strength of the evidence in Robert Whaples' survey and Mankiw's reliance thereon.

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Damn, nothing gets by this crowd.

I also guess I should have mentioned that I would side with the minority for maybe half the list (and that a number of the items contain language with holes big enough to drive a truck through). In my defense I am only an armchair commentator.

I really enjoyed that discussion. Thanks for the link,

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you are asking to straight of line here or immediacy---first deflation has not happened system wide----yet---but we are on the doorstep.

Understand how it begins----there is a market place lessening of demand for goods (things) and services (labor) than the cost or offer for those goods and services reduces.

But what you all should be focused on is the continuous slide of the housing index, each clip downward begins to draw deflation into the ballgame.

you see, how we reset the economy that has lost a legitimate 20$ of wealth be it paper, promises, or secured or improved assets has to be recorded somewhere....now as demand for improved land...homes and commercial places, then the marketplace lowers the price.

right now the resistance in the market is considered the denial or forced in that most land is leveraged where the paper holder has to give permission to short sell---thus they take the hit--- the problem is if there is no more service on the debt and the holder takes foreclosure they then often sell it at far lower prices.....and the spiral begins.

Other deflation is the inventory backlogs where holding on to stuff is more expensive than selling at a short sale.

you will see deflation in full measure when the expected 6M current and future job seekers start taking 50% cuts in compensation and real reduction in earnings....right now it is $46,000....look out if it falls down below $40,000

but this will take time...and everything the Feds and US Govt is doing is trying to forestall this....think of the Recovery and Relief Act as if someone is trying to throw a roll of toilet paper into the toilet to stop the toilet from flushing......

for you know the water is shut off and you will have a dry toilet....

now once the water is stopped you have to figure out how to get the water flowing before flushing the toxic waste down the toilet but in the meantime you can still use the toilet for some things at least for a while.

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. . . first deflation has not happened system wide . . . .

It all depends upon how you define deflation -- prices of goods and services or of assets.

House prices are down; auto prices are down; the stock market is down; debts (somebody's assets) are being destroyed; and credit is down. Sounds like deflation to me.

You say TOE-MAH-TOE and I say TUH-MAY-TOE. Let's call the whole thing off.

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This is a table setting out Mike Shedlock's "conditions in inflation, deflation, stagflation, hyperinflation, and disinflation."

His discussion is here.

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Me too, and deflation has the nasty characteristic of becoming entrenched once it's in play. In a consumer-driven economy it plays hell with growth.

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