Wednesday, January 23, 2008

Stimulus Package: Worst Idea Competition

by Bill McBride on 1/23/2008 09:31:00 PM

There are too many proposals being circulated to comment on them all. But I'm pretty sure this is one of the worst ideas:

From AP: Builders, Banks Could Get Tax Break (hat tip AH and JW)

This is dumb for several reasons. First it is simply bad economics (note that no one took credit for this lunacy). Second, the proponents must have a tin ear: refunds for banks and builders? Third, what happened to getting money to people that will spend it?

Of course we also have Senator Dodd in the competition by proposing to bailout the lenders and investors, from Bloomberg: Dodd Seeks U.S. Program to Buy `Distressed' Mortgages

Senate Banking Committee Chairman Christopher Dodd proposed creating a federal program to buy ``very distressed'' mortgages at steep discounts as part of economic stimulus legislation being developed in Congress.
I'm sure there are many other proposals competing for "worst idea" status!

So what is a good stimulus package? The package should give money to people that are going to spend it. This is harder to do than it sounds. Temporary rebates / tax cuts tend to be saved or used to pay down debt. So we need to be creative.

Perhaps having the General Fund pay the workers' portion of the payroll tax for a certain period (or for a certain amount earned - say on the next $20K per worker). My guess is that extra take home pay every week or two will likely be spent.

Whether this would work or not, I don't know. But the criteria should be clear: if a stimulus package is enacted, every dollar should be put in the hands of people that will spend it. We should not bailout lenders, investors, banks or builders under the guise of stimulus.