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Tax Rebate Would Taste Great But Provide Very Little Stimulus

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The Tampa Tribune

Published: January 22, 2008

Politicians who tell us there's nothing wrong with the U.S. economy that a quick rebate check won't fix are only half right.

There's nothing wrong that won't soon be corrected by the business cycle, whether rebates arrive or not. Already households are adjusting to high fuel costs and the reality that our homes aren't worth as much as they were two years ago.

Because consumers and businesses have suffered real economic shocks, a soothing tax cut has a useful psychological value. Republicans and Democrats should agree to do something broad-based, fast and temporary and get the checks in the mail.

Republican Sen. John McCain, true to his straight-talk image, is rightly skeptical of the economic benefits of a short-lived tax cut: "Remember who's going to pay that. It doesn't come off a printing press, OK? It comes out of your pockets."

Democratic Sen. Hillary Clinton disagrees, going so far as to say "stimulus shouldn't be paid for." Rather, she says, it should be "an injection of federal funding."

Such promises of free money put Democrats at odds with their own pay-as-you-go budget rules and their strong criticism of President Bush's budget deficits and his tax cuts.

Republicans too are in a bind. Having blamed the last recession on President Clinton, they're in need of someone to blame now should growth stop for a recession-making six consecutive months.

One possible scapegoat is the Federal Reserve. Four years ago, with overnight interest rates at just 1 percent, the Federal Reserve began to worry that growth would run too fast. It started raising interest rates, the equivalent of shooting the galloping economy with tranquilizer darts.

The medicine acts slowly, with full effects not felt for about a year. The rate increases ended in mid 2006 and a year later the Fed realized, oops, too much sedative. Now rates are back where they were at the end of 2005, and the Fed is poised to cut again next week.

Meanwhile, some economists fear the economy already has stopped moving. Corporate earnings are down and mortgage foreclosures are up. A bad day on the market today could leave stock prices low enough to officially end the bull market that began in October 2002.

Housing starts in December were the lowest in 16 years while wholesale inflation was up last year the most in 26 years.

Yet there are plenty of encouraging indicators, too. The most recent economic snapshot from the Atlanta District of Federal Reserve noted "Florida businesses that serve winter visitors reported strong activity."

Mortgage rates remain low. Real estate agents in Tampa tell us good houses in good neighborhoods are selling fast when they are fairly priced.

Things will turn around. We Americans work too hard for our combined efforts to move backward for very long.

Political leaders should focus on problems we workers and consumers can do nothing about, such as the rising costs of entitlement programs that cast a cloud over our future economic prospects.

But since they don't want to talk about that, Congress should go ahead and send us some checks. The one thing everyone in and out of government knows how to do is spend money.

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