Friday, February 08, 2008

Stimulate my economy

I think its interesting where Congress drew the line in the sand between the too rich and those that need to help the economy survive. As far as I understand it, the desire is to get money in the hands of the people so that they spend it and by spending it, push more money into the economy. I think the unfortunate thing is the line in the sand. Those making more than $75,000 as a single person or $150,000 for married couples do not see a dime (depending on how the money is phased out). This says either of two things:
1. Those making above that amount do not need extra money to pump into the economy.
2. Those making above that amount would not use the money to stimulate the economy anyway.

If Congress made the first assumption, it seems that the amount was a bit low to declare that those people do not need the extra money. Those people are the ones that pump money into the expensive coffee drinks, upgrades to their homes, and other services which have a great trickle down effect. They also typically have money tied up in investments, which right now have been doing poorly and are less likely to spend their money when investments are not doing well. So, I guess I would say that giving them some extra money to pump into the system would have been a good idea.

If Congress made the second assumption, I am not sure I can argue that as well. Those people with money tend to be some of the less likely people to frivolously spend it since they have many of the nice amenities in life already. That said, they also know how to spend the money and often it can be on services rather than goods which generally keep more money in the US economy. For example, buying that expensive TV may siphon the money out of the US economy quickly as its not made in the US and the company who makes it is not often a US based profits leave the US quickly. However, if you have a service like a landscaping service, everything from the plants to the laborers should be US tax paying individuals.

Either way, I guess I just wonder how the majority of people will spend this money which will only go to the lower class and most of the middle class. (All of the middle class by some definitions). Its about 1 month after the Christmas spending cycle and there is problems in the housing market. How many people will use this to help with their mortgages or pay off credit card debts racked up from Christmas? I personally hope that many will. But, that doesn't stimulate the economy.

Don't get me wrong by this posting, I don't believe the upper class at this point needs the money. I just think that the theory for how this money is going to get pumped into the economy isn't one that scales. How about tell the upper class that if they pull money out of their investments and spend it all on services, they can not pay tax on those investments. That seems like a way to get the rich to put some more money into the economy :-)

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