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From The Times

January 22, 2008

Tax rebate could be President Bush's best legacy

Gerard Baker: American view

Stirring themselves from their customary posture of inertia (motto: “Don’t just do something, stand there!”), America’s politicians have decided that it is their bounden duty to step into the breach and rescue the flatlining US economy.

With Wall Street in a full-blown slump and most indicators suggesting that a recession is already upon us, Washington has figured that the crisis is too grave to leave solely to the efforts of Ben Bernanke and his colleagues at the Federal Reserve. The fact that we are in an election year and candidates from both parties are competing in a demented auction of fiscal stimulus packages (“Do I hear $200 billion and a bailout of the entire mortgage market?”) is adding a certain political urgency to the process.

Last week it became clear that President Bush was going to spend much of his final year in office doing what he did in much of his first — pushing Congress to pass a sizeable package of tax cuts designed to lift the economy out of recession.

You can understand the man’s alarm. As though his legacy were not tarnished enough already, there’s a real chance that if things don’t get better quickly he will be remembered for a presidency that botched a war and nearly lost an American city to a hurricane, neatly sandwiched between two slumps. It will make Herbert Hoover look like George Washington.

Not that either recession was his fault, of course, but history can be cruel like that. Politicians can do little to expand the business cycle, but they get the blame anyway and everybody expects them to do something when trouble strikes.

Mr Bush’s plan is remarkably similar to the one he launched in 2001 within days of taking office, when the economy was struggling with the burden of the collapse of the dot-com boom.

He wants the Internal Revenue Service to mail out rebate cheques to all taxpayers. The Administration hasn’t publicly put a number on the plan yet, but officials say they are thinking about $800 for individuals and $1,600 for families. In total that would inject about $150 billion (£77 billion) into the US economy. That represents about 1.2 per cent of gross domestic product, a not insignificant amount. If Congress can get its act together, that would be in people’s pockets some time over the summer, perhaps just as the slump is really starting to hurt.

Democrats, who control Congress, are not convinced. They don’t mind the rebates but they want them to be targeted more at lower-income families. A proposal doing the rounds on Capitol Hill would reduce or eliminate the rebate for people earning more than $85,000 a year. It would also find ways to get money to people who pay no taxes, as they would gain nothing from a rebate. Democrats also want to increase spending, perhaps with some money aimed specifically at the moribund housing market.

There’s more than just the usual class warfare rhetoric about this battle. Empirical economics suggests that lower-income families and those with incomes too low to pay taxes are much more likely to spend money than higher-income groups. If you’re earning more than half a million dollars a year, chances are you’re just going to save an extra $800 or $1,600, providing no initial stimulus to overall demand. If, however, you’re struggling to make ends meet it’s likely that you will spend all of the rebate, with all the beneficial second-round effects on aggregated demand that involves.

Furthermore, economic theory also says that increased public spending is more efficient as a stimulus than tax cuts. Good, old-fashioned Keynesian economics holds that, again, since government spending goes straight into domestic demand, you get more fiscal bang for the buck than you do through tax reductions, where a sizeable part of the stimulus “leaks” into higher savings and more spending on foreign imports.

Strangely, until 2001, the whole idea of fiscal stimuli, of fine-tuning the economy, had gone the way of much of the 1960s Keynesian economic consensus. Almost everyone believed it was better to leave short-term demand manipulation to monetary policy and interest rates. It was believed that the fiscal side — other than through the work of “automatic stabilisers” (the fact that tax revenues fall and spending increases naturally during downturns) — should focus on long-term stability.

Yet the experience of that first round of Bush tax rebates seven years ago tells us that there might be a case for tax-cutting as part of a fiscal stimulus. Economists at Princeton University, the University of Pennsylvania and the US Labour Department found that the effect of those rebates, worth $300 for individuals and $600 for families, lifted domestic demand by about 0.7 percentage points in the second half of 2001. Not enormous, but not negligible, either. It seems that the advantage of a rebate over increased spending is that, unlike government expenditure, rebates get money into the economy straight away. Building bridges and roads takes time.

And it should be noted that, unlike the British Government, the US is at least in reasonably healthy fiscal condition and can afford a little bit of fiscal easing. The federal deficit is only a little more than 1 per cent of GDP in the US, well below the 3 per cent figure in the UK.

So bring on the tax cuts. They won’t avert a recession or even stop one that has started. But they can ease the pain a little at relatively low cost. In these days of diminished expectations, that’s about as much as anyone dare hope for.

? Bush's "legacy" is mostly what it is because of factors that have been affecting America for longer than he or his father were ever in office. The economy is sufferering but so is the earth and No he has not done much to protect or help the environment but at least we're not drilling for oil in Alaska - yet. Yesterday a coke truck in front of the bus stop i was standing at dropped a gigantic pile of flyers and paper on the street and i got to watch it blow around in the wind. it made me upset. I just want to say we're not none of us going to be okay if the government - and people personally - don't do more to respect the whole sea to shining sea thing. we need policies in place that are going to keep us as a country and as a world in better shape. so when people who haven't paid taxes and people that do get this refund can we please just do something with it that is not going to mess up everything worse? Don't just blame the president. And I need a car.

Abigail Carter, Providence , R.I.

How would this hurt the U.S. Economy Nicole? I think you mean that it would put the Federal Government into a bigger deficit, meaning more spending than income. The whole point of giving the money away is to hope that people will spend the money to help boost the economy. While this is going on the government will make most of it if not all of it back through federal, and state taxes. I think its a great Idea, but if they want to get that money back from taxes they should probably give it to lower income families because they are more likely in need of the money and this would make them more likely to spend the money. Any household making over $150,000 will most likely save it. I think they ought to give it to anyone enrolled in college full time also, because you know that money will be spent in the U.S.

Greg, Lee's Summit, MO

i do want to say that i agree with the fact that the people with money really dont need more money. what they spend on one pair of shoes is my monthly bills. i would also like to add that my aunt is a woman who has always worked hard. she did not work this year for the fact that she had a child and couldnt. so what is she going to get from president bush?

krol, fairmont, wv

I am a senior citizen living on a fixed income and for the first time in my life, I am having to spend more out that I get for my pension and because I worked for the Federal Government I only get a small amount of Social Security due to that Government Offset plan that was enacted by President Reagan.

We senior citizen retired Government workers desire the full amount due us because everything has gone up in addition to the fact that we spend more for medical help.

I sure hope the next President realizes this and will try to help the seniors especially widowers who have nobody but themselves.

Gloria Linton, Asheville, NC

There is no doubt that this rebate will stimulate the economy some, but is anyone looking at the big picture??? ===More debt for the U.S. Economy?

NICOLE, New Haven, CT

YEAH, Bush's rebate could be his best legacy.....

THAT is SAAAAAAD.

NICOLE, New Haven, CT

I think this is a good idea, but what I am more concerned with is the fact that the item I paid 1.97 on Jan 1, I now pay 2.50 for on Feb. 1. I drive 100 miles a day round trip to work and gass is about 2.90 per gal. Everything is going up but my PAY CHECK REMAINS THE SAME. Something is going to have to give, we can not continue to pay more for items and gas and not make any more money. This one time shot will help but there needs to be more done.

T Gragg, PB , Arkansas

Yes give us some damn spending money! I am a single 22 year old woman who spends most of my money ( I don't make very much) on rent-I have a crappy little studio in the most ghetto part of the 626 area and its half my income a month! and bills because I am horribly in debt. During the year the IRS takes away SO MUCH from me because I haven't popped out any kids and I'm not married. Us single ppl should be rewarded for not causing an already over populated world to be more over populated not punished by sucking us dry! Ugh! Anyway, this extra refund is a great way to put back money into our economy and give a little extra relief to those of us that are struggling.

Syndi, El Monte, US/CA

I think the tax rebate would be great!! I am a single mother of two little ones and I struggle from paycheck to paycheck to make ends meet. I just hope it doesnt effect 2008 tax returns.

Jennifer, Jefferson, Ohio

my husband works 58 hours a week for a coal
company.he drives 1hour and 30 minutes to work
so most of the home repairs and car ails back to me.but i don'i work i will not get a rebate check.
i think his tax should be counted as mine.

carman, hager, usa

I like the idea. I just hope it will not affect the 2009 return. I count on my return every year to pay my land taxes.

Craig, Houston , tx

It's unfortunate that the democrats want to limit rebate eligibility to those with incomes of less than $85,000. I make over $200,000, but yet still struggle to cover everything--I believe that most people in my income level would indeed spend the rebate.

Jack, chicago, IL

Why are we giving Tax Rebates to those who pay no taxes? If you pay no taxes then you should not be able to receive a rebate on it. It's ridiculous. My husband and I have 2 good jobs, monitor our spending, and try not to get into too much debt. I feel like if we make good money we are punished. If we go out and get jobs we must pay for those who are less fortunate, which i have no problem doing. Some people who are considered less fortunate are that because they choose to be. Why work when you have the govt do it for you? I don't know if we will get this refund this year or not. I guess it depends on where the cutoff for the family salary is, but I do know one thing a lot of people who don't deserve it will get it!

Lauren, Elkmont, AL

I feel like the Senior citizens on Social Security should get a rebate also. My mother can't live on her Social Security. With the cost of prescription medicine and rising cost of gas & groceries
& astronomical electric bills, she is at her wits end! Give Seniors a break too!!!!!!

Cathy Arnold, Nevada, Texas

My husband and I have to pay every year. This year we figured that we brought home 60% of our gross income. A tax rebate would be wonderful to us. It would help us pay what taxes we will owe this year.

Dianna, Catlettsburg, KY

Dianna, Catlettsburg, KY

Becca I love your comment , it's so true. All I want to say is where is that damn CHECK!!!!!

Tiffany, Cleveland,

The real solution: Vote Ron Paul 2008!

Mike, Mount Prospect, IL

I think the money is needed for folks who are falling behind and can not put extra dollars into the economy becasue they are just trying to eat and keep their family under a roof. This includes famlies who make more than 85k but maybe not more than 100k per household. It is absolutely rediculous to considered giving money to people who do not pay taxes. Just like it is rediculous that welfare recipients revieve tax returns that are more than what they paid in every year. There are families out there with parents who are college educated and just want to pay all the bills on time and save some money for their children to go to college as well. These are America's working poor and it needs to stop!

mad , Fairfiled, Ohio

Bush's leadership, in addition to all the other failures, has seen our national debt go up from an already too-high $5.5 trillion to almost $10 trillion now. Neither George Washington nor even Herbert Hoover, highly intelligent and fiscally responsible men, deserves to even share a headline with GWB, our "Credit Card Trillionaire."

Anthony, California,

Eugene...
Many of the investors in the American Subprime market include oversees companies including those in Europe. Keep in mind that greed is the ultimate motivation behind capitalism and without greedy borrowers, there would be no greedy lenders. Ultimately each borrower is responsible for themselves, for the contracts they choose to sign, and for the consequences that befall them as a result. Smart decisions breed smart results. If a borrower lost a house due to non-payment than they did not deserve the loan to begin with. Let this be a lesson to all involved including the lenders (who are taking the fall as well).

JQ, Denver, CO

If you don't pay, you should not get a rebate. Any politiican who supports giving people who do not pay a rebate, will lose my vote and I will educate every person I see about how the politician gave away their tax money to someone who did not pay taxes.

Anne, Rogers, AR

Bush caused Hurricane Katrina, botched the relief effort which was his sole responsibility, screwed up the economy and the war, and by direct linear logical extension, he caused the boil on my ass.

With this rebate I'll be able to afford some Anusol.

Romulus, Drumlin City, Wisconsin

Perhaps you all are to dense to realize this but some us poor people work too. My family works, yet struggle daily with a fifty dollar a week grocery budget and two space heaters to warm our house. Fifty dollars is not enough when you need diapers for a child. Yeah, we've tried for government assistance however we are above their income level. It's the borderline middle class/ lower class that needs help. The ones that work their butts off and go home to almost empty cupboards and no heat. It makes me sick to know that we work and pay for others to be fed better and cared for more than ourselves. We would more than welcome a tax rebate. So until you try to feed a family of four on fifty dollars a week, take a chill on the poor people because some of us work and do not get hand outs.

Becca, Findlay, OH

As it is I am not getting anything back, actually paying in for the second year . Funny as we get older and life changes, ie no dependents and single now, funny how I pay in and still come up owing at the end of the year. Wow, almost worth getting married just to have a dependent. Sad as that sounds!'So would welcome a rebate , ANYTIME!

rr, columbia, sc

WE need the $ Now! And I think it should be just to those individuals that pay income taxes!!! Not to anybody who doesnt. we ALREADY pay for their Housing, groceries, electric,ETC we pay for everything, (the Working Middle class is getting so close to be the poor, the poor need to get jobs so the government doesnt have to take all the working peoples $ before they even see their check

christy, lafayette, la

The credit crunch/subprime mortgage crisis was caused by people over-spending and over-reaching to purchase items they could not afford. Now the government will add to the national debt by giving a cash reward to the very people who caused the problems in the first place. The Middle Class who save, pay bills on time, get an education and increase their earnings through hard work again subsidize the hand-out cravung majority. Shame on Bush, shame on Congress.

Simon, New York, NY

i just hope that the new incoming president would be able to turn America to the America we always known and loved.

inez roman, readin, pa

I am in a 40% tax bracket. I despise the fact that Bushco ran up an 8 trillion dollar deficit. Had he been a true Republican our debt would be zero. We would not have invaded Iraq and we would not have incurred a 3 Trillion war liability. On top of all this is the human grief and suffering by Iraqis and the families of the slain American Forces (and British as well).
His Incompetency's reign will end In Jan 2009. Thank God

Isaiah, Dallas, Texas

Americans borrow money from China to send people refund cheques and pay for more expensive oil, up from $25 to $90. With petrol $3 in the US and $6 in Europe, if they used fuel efficient transport, as in Europe, they would use less oil, and the demand and price of oil would drop. Tax/refund suggestion:
1) Incrementally add a tax to fossil fuels, every month (e.g. add $0.10 a gallon every month).
2) Collect the tax into a separate fund( approx 10 billion gallons a month, and after 1 year $1.20 = $12 billion).
3) Divide the amount by the number of Americans over 18 (approx 240 million over 18 = $50).
4) Send everybody over 18 a monthly refund cheque ($50 per person per month or $600 a year).
If the oil price fell, and petrol fell from $3 to $1.80, then add another $1.20, and give people another $50 a month additional refund. This uses: Price signal, free enterprise, freedom of choice. Businesses will likely also increase their investment spending - so creating jobs.

Hugo van Randwyck, London, UK

Dr Barton, what the hell have you been drinking?

James, London,

I agree with Dr Barton

Tom, London,

It couldn't have come at a worse time for Ameica with Bush as President. What hope is there for the world economy with this man still in office.

Diddly Do, Liverpool,

Bush's first round of tax cuts actually increased the amount of tax revenue after a few years, because of their effect in stimulating the US economy. Dim-witted UK politicians and voters don't understand this principle; lower tax rates mean more income for the Government and more to spend on healthcare etc., until one reaches a point where taxes are much lower than they are now.

Frank Upton, Solihull,

Iam sure Iam going straight out on a limb, but something
surely needs to be done to help the American economy.
Quickly!!
Who is supporting our American economy? The breaks always seem to go to the folks who have been given breaks all along. If there are tax rebates given, they should certainly be given to tax payers. They should be given to people who actually will buy needed products & items with the money. this is something I have first hand knowledge of-so many people today are sending earnings, and acquired money out
of America, to people living in other countries.
How is this helping the American economy?
Eliz McL Nash TN

Eli, Nashville, TN

Legal tax paying American citizens should
receive tax rebates.

Eli, Nashville, TN

I think the rebate is an excellent idea. The lower income and average America will put that money back into the economy right away, where people over the $85.000 mark with just put it away. Also it turned out very well in the past. I don't feel that people that do not pay taxes should get taxes back.If you don't put in then don't take out. It's a quick fix and it works.

Sherry Ferguson, McKinney, Texas

The rebate is a quick fix that works. Middle class America will put that money right back into the economy. I don't feel non tax payors should get the rebate. If you don't pay taxs, why should you get them back. If you get back $800.00, you will not be shorted that amount next year. You will only pay tax on that amount. It dosen't add up to much. It's not our ony problem but it is a porblem. A recession is not fun to go through.If this can help, I say. "Do it."

Sherry Ferguson, McKinney, Texas

Mr. Baker, I see, is blaming Mr. Bush for Katrina and the New Orleans devastation. There is a lot of blame to go around and it doesn't all belong to him. The Democrat mayor and governor should have more blame than he. The state authorities must ask for Federal help. The Feds just can't go in. It's a constitutional thing. And as to the levees, every previous government shares the blame as well as the current one in this regard. Let;s be fair in assigning blame.

M. G. Stevenson, Oshkosh, WI, U. S. A.

Hey, I will gladly take and spend $800 to save Europe. Wahoo!

Karl Dahlquist, Burbank, USA, California

For future example, you might want to jail those bankers whose credit strategies were "reckless" TO SAY THE LEAST.. There's no capitalism, without justice, said our dear Adam Smith.

Eugene, Heidelberg, Germany

And how will these tax cuts pay for decades more war in Iraq, Afghanistan etc etc?

Insiders suggest that the US banks are hiding more like $3 trillion in write downs, so it is not just our dear Darling who is telling accountancy lies.

Simon Robinson, Gibraltar, Gibraltar

It's time to pay the piper for the easy money song he's lulled us with. My advice would be to pull in all debts, pay all bills (you can), and hunker down. The dollar isn't the only thing that's going to tank. Think pound, baht, euro, yen... If we (Ameicans) don't buy, the global economy goes 3rd world. Screw Wal-Mart AND Wall Street! Greed is good? Yeah, right.

Stephen Miles, Fayetteville, NC, USA

a rebate now will cost us later. it always does.

scott, Ilion, new york

EU being dictated to by Vatican and Roman Emperor ideas of Gods.
Denials of Nazis links not accepted as Mussolini, fascist, founded modern Vatican and Hitler was his Axis partner. So Vatican and Popes fully involved with that immoral and gross regime that destroyed the light gene of Europe in the Eastern and North African remnants of Empire.
All the Allies should have known better than sink the Protestants and modern science understanding into this gross EU and Vatican dominance so inferior to the Commonwealth and USA and Russia.
From the statistical Global figures for Earth as one we get the Commonwealth as level three, UK, Nation State as about level five and not how the numbers needed for audited figures grows as level increases. Detailed systems and calculations needed not just guesstimates and different from Whittaker's analysis.
It is hard to believe brown encouraging media as Indians lead the last Asian invasion of UK and these acts seem to create another immigration wave.

Dr MI Barton MA. MBA.PhD, Oxon., uk

The rebate would be an advance on next year's refund. That means a single person would get back $800 less in 2009, a married couple $1600 less, and possibly owe a balance due.
The rebate is not a free gift, just a loan against next year's taxes. We may need the money more a year from now. I say forget the rebate. I don't want to have to pay it back next year by getting that much less money from my 2008 tax return.

Rita Ball, Boaz, USA / Kentucky

What a great idea which will really help to stimulate the economy - give people some money back so they can hand it straight over to their loan providers as a part payment on the month's interest bill

rick, sydney, australia

Good grief not another one. The big fear the stock market had better face is the small investor giving up on the stock market seeing what little hes gained over the years vanish overnight. And if u were considering retiring on your 401K plan thats out the window. This one could be nasty globally. I for one dont trust the politicians to do the right thing. Most likely they will load up any package with goodies for their friends and cronies. Every bill thats passed this year under the leadership of the Democrats has been loaded with those cursed earmarks. They've treated the treasury like a personal piggy bank for years for the sole purpose of acquiring personal power. Its obscene the money they've showered on their political allies. Getting rid of the Republicans hasnt changed a thing. We just exchanged one set of corrupt politicians with another. Spend, spend, spend is all they know.

CynicalCitizen, Cburg, USA

With the shape we're in now, what can it hurt? Might as well have a little sumpin sumpin.

Ada

Ada, Binger,

Hell... I just want my refund from my amended return. 12 weeks waiting only to be told they came up with a different amount (in my favor but no check)... now waiting another 12 weeks. So an amendment sent in September is getting refunded in March. That hurts... and people think government healthcare is going to be efficient?

JC, New Smyrna Beach, FL

Bush needs to do something to fix the mess he caused. Our economy is in such a mess we need some kind of relief.

He started his presidency on a high note he might as well go out with a bang too. Send out the checks, the sooner, the better.

Wenona, Flint, MI

Ya, and bring on the re-bates cause I need some new luggage...and an amplifier.

Dan, Iowa,

And by the way, if you like "increased public spending," keep in mind that the lion's share of expenses for the War on Terror, as with the War on Drugs, involves transfer payments to American arms and aircraft manufacturers. The only upside of this corporate welfare is that it injects money into the economy and puts people to work (lamentably, manufacturing the machinery of death). So, we've got plenty of public spending already, and look where it's got us.

Jim Houghton, Los Angeles, CA, USA

As usual, the Wall St gang have got it wrong. As usual we have a ' crisis '. Whenever anything goes ever so slightly wrong, we have a ' crisis '. A Housing ' crisis ', Health ' crisis ' Global Warming ' crisis '. We have a crisis ' crisis '. The economy is not in a recession, but the ' crisis ' mongers will be blow-hards for one. In six months when the official numbers come out, no one will remember. The mortgage people screwed up, let nature take it's course instead of ' ACTION ' now. Fire the greedy people who created this problem. First take their million dollar bonuses back, pour encourager les autres.

Desmond Taylor, Houston, USA Tx