Almost every time the federal government decides to “help” the taxpayers of America, I am reminded of the words of former President Reagan who said: “Some of the most terrifying words in the English language are I’m from the government and I’m here to help.” When it comes to the sub-prime mortgage crisis, no truer words could have been spoken for it was the government’s intervention into the mortgage industry that actually led to the sub-prime mortgage crises. Through revised regulations and guidelines, threats of lawsuits and anti-discrimination legislation, the federal government encouraged and even forced the mortgage industry to loan money to people with bad credit histories and who never should have been approved for mortgages in the first place. Many of these borrowers were getting 100% to 105% loan to value mortgages. The result of all this government “help” was that many of these people eventually defaulted on their loans, which was not a surprise to anyone in the industry.
Now, the federal government is turning its sights to the US economy. When the $150 Billion dollar Economic Stimulus Package was originally proposed, Americans were told that individual “Taxpayers” would be getting tax rebates of up to $800 and married couple “Taxpayers” would get rebates of up to $1,600. The cost would be around $100 Billion dollars. Another $50 Billion dollars was to go to businesses to allow them to deduct 50 percent of the costs of purchases of new equipment. Giving a tax rebate to individual and business “Taxpayers” so they could keep more of their money is not necessarily a bad thing, although tax cuts would be a better way to stimulate the economy.
In the grand tradition of our federal elected officials pandering to special interest groups and trying to buy votes in an election year, both Republicans and Democrats in Congress have agreed to take approximately $28 billion (28%) of the $100 Billion dollar tax rebates originally designated to be given to “Taxpayers” and give it people who did not pay any taxes. How can a tax rebate be given to people who never paid taxes? It’s easy, particularly when career politicians are more interested in getting reelected than looking out for the American taxpayer, and when they are the ones designing the program.
Fortunately, for the non-taxpaying people receiving the tax rebates, these rebates will be a gift, not from the government, but from other “Taxpayers” in America. There will be no tax implications for this group of people because they pay no taxes. Unfortunately for the average American “Taxpayers,” the tax rebates will not be a gift from the government. American “Taxpayers” who receive the tax rebates in 2008 will have to report the money they receive as income on their 2008 tax returns and pay taxes it. How’s that for fairness.
This $150 Billion dollar government give-away will not create jobs, offer any real tax relief to middle class “Taxpayers,” nor help revive a sluggish economy. What it will do, however, is allow members of congress to ‘buy votes” with the taxpayers money.
Although the current proposed House Bill has been estimated to cost American “Taxpayers” about $150 Billion Dollars, just wait until the Senators get their hands on it in an election year. Senate Republicans and Democrats are already looking to add the following to their version of the bill: $800 million in heating assistance for the poor, $12.5 billion for an extension of unemployment benefits, $5 billion more in food-stamp extensions, money for low-income retirees who are left out of the House plan and hundreds of millions of dollars for mortgage counselors. Most likely, by the time the Senate gets through with their version of “pandering to the voters,” the cost of this whole program will be closer to $200 Billion dollars. That’s $200 Billion dollars that America doesn’t have. That’s $200 Billion dollars in more government IOU’s that some foreign country will buy, thereby increasing our national debt way above the 9+ Trillion dollars we already owe.
In contrast, cutting overall tax rates would provide the best economic stimulus, because reduced taxes provide the incentive for entrepreneurs to create jobs and pursue new business ventures. This is how prosperity is created. President Kennedy, President Reagan and President Bush fought for tax cuts soon after taking office. History has proven that when taxes are reduced, total tax revenues increase.
The Bush tax cuts are now set to expire in 2010. The combined cuts are projected to save taxpayers $1.7 trillion over ten years. Reducing tax rates, whether individual or corporate, encourages people to invest in new equipment, plants, technology and hiring of employees, and they also motivate people to work more, create more and take more chances on new ideas. Over both the short-term and the long-term, reduced taxation is the best way to strengthen the economy and create wealth. Government interference and handouts never work.