The Tentative 2008 Economic Stimulus Plan: A Failure in Leadership?

On the heels of U.S. recession fears prompting worldwide sell-offs in the financial markets, a tentative deal between the White House and the Democratic-led Congress on an economic stimulus package of tax rebates similar to the 2001 rebate plan was hammered out this Thursday (1/24/08). The total cost of the plan as currently outlined, which would provide tax rebate checks of up to $600 for individuals and $1200 for married couples as well as providing tax breaks for business investment, is expected to cost the US upwards of $150 billion or around 1 percent of the country's gross domestic product. Individuals making more than $75,000 annually and couples making more than $150,000 annually will not be eligible for the tax rebate under the current plan.

In addition to the tax rebates the plan called for authorizing increases in the size of home mortgages that can be financed by the government-backed housing giants Fannie Mae and Freddie Mac. The goal of this plan would be to inject money into consumer's pockets in response to the economic slowdown. The Federal Reserve Board made its own attempt to soothe the financial markets on Tuesday with a three-quarters of a percentage point decrease interest rate cut. Despite all of these measures, the Congressional Budget Office expected the deficit to rise above the current projected amount of $219 billion if the economic stimulus package is approved.

While the idea of having a few extra dollars available sounds nice on the surface, I see the measure as entirely fruitless. I would even go so far as to say that this measure once again demonstrates the total failure of leadership in both parties for not standing up and taking appropriate if unpopular measures (such as raising taxes or reversing the Bush tax cuts). Even if my wife and I were to receive the maximum $1200 rebate for married couples filing jointly, the stimulus would do nothing to improve our current position. The money would be useful in paying down accumulated debt, but we want to increase our savings which would not be possible. I am also greatly concerned that many would simply spend the money on luxuries rather than save the money for appropriate needs. As my wife and I are currently expecting our first child together, having money set aside seems far more important that completing a home theater project.

I am also more concerned by the still looming home mortgage crisis. I have still yet to hear a reasonable plan from either the Republicans or Democrats on how to respond to the problems related to reckless lending practices by many home mortgage companies these past few years. I believe a bailout is probable but I hope it is focused on the borrowers suckered into loans they clearly couldn't afford and not the mortgage lenders whom sold these unaffordable loans. The leadership of neither party also seems willing to tackle the ever mounting debt of the United States as the result of runaway spending by this administration and plans like this tax rebate scheme. If this is the best the Congress and the White House can do, then they have failed us totally.

Richard Cowan and Donna Smith, Tentative deal reached on economic package, Reuters
Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2018