Tax Rebates as a Stimulus
Just about a year ago, the general consensus in Congresss was that we were in danger of falling into a recession. As the months went by, that seemed less likely, but now, thanks to the NBER we know that actually was the case. Congress passed and the President signed a fiscal policy stimulus in the form of a one-time tax rebate check. Most taxpayers received this check in the summer.
In hindsight, that rebate probably didn’t have the a strong impact on GDP – through the Consumption element – that we desired. It appears that we consumers used the check to pay off debt or to add to savings, rather than going out and consuming. (How un-patriotic of us!)
This chart comes courtesy of John Taylor’s opinion piece in The Wall Street Journal on November 25. Note how personal consumption did not materially jump as the tax rebate checks arrived.
Taylor argues that tax cuts must be permanent and predictable. I’m not in this camp, but his article deserves a thoughtful read.
I teach principles of economics courses and a course in the economics of healthcare at Southern Oregon University.
Considering how the rebates offered little support to GDP, would it be appropriate for Obama to focus on healthcare right now and forgo another round of rebates? Essentially, taking money that would be round 2 of rebates and instead use that money to support a new healthcare program, a sudden influx of money into an expansive market with rising costs. Might that have a greater effect on GDP?