Thursday, January 31, 2008

It's a Bad Deal!

As the above chart reveals, under the Bush administration's stimulus proposal, over 70% of the rebate would go to the top 40% (income above $47,000) and less than 10% would reach the bottom 40% (income below $27,000). According the analysis by the Brookings-Urban Institute Tax Policy Center, 55.9 million households would get no rebate at all from the plan, in part because many households pay no federal income tax. Most of these households, however, do pay other forms of taxes, such as payroll taxes on their earnings.

Read a blog on the Huffington Post lambasting the bi-partisan House/White House deal.

According to the Economic Policy Institute, “the White House plan suffers from very poor targeting, and thus fails on two critical criteria: efficiency and equity.

The economic research on effective stimulus is quite clear on this point: there is a greater bang-for-the-buck from rebates targeted at lower-income households than higher-income ones. As the Congressional Budget Office put it in a recent report:"Lower-income households are more likely to be credit constrained and more likely to be among those with the highest propensity to spend. Therefore, policies aimed at lower-income households tend to have greater stimulative effects." Given the well-documented increase in income inequality in recent years, excluding low-income households from the rebate also fails on the criterion of fairness.

For a tax rebate to be both more effective and more equitable, it should be targeted at low- and moderate-income households.”

We need a plan that provides immediate aid to cash-strapped states, and spending on repairs and maintenance of schools, bridges, and other public infrastructure.

The following excerpts from Economic impotence package? are quite telling:

"...receives the approval of Republican strategist Grover Norquist, who sounded positively giddy over another defeat for Congressional Democrats' pay-as-you-go spending rules.

President George Bush's success in framing negotiations for the package around tax cuts rather than mortgage reform is almost as breathtaking as his ability to convince Democrats to pass an unfunded bill.

Treasury Secretary Henry Paulson has repeatedly cited the deteriorating housing market as a major threat to the broader economy... But it is remarkable that the only provisions in the final House package that address the mortgage market are increases in loan limits at government-sponsored enterprises and the Federal Housing Administration, which effectively allow the government to securitize more loans."

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