Efficiency and justice

It looks like Congressional leaders and the President are going to be meeting today to hammer out an agreement on the outlines of an economic stimulus package.  If you can possibly send an email or make a call to your representative and Senator this morning, and emphasize that any tax rebate should include everyone who pays payroll taxes, not just those who owe federal income tax, it could make a big difference.

Most people’s eyes glaze over when they start to read about the details of the stimulus proposals, so let me try to explain what’s going on and why it matters.

The key thing to understand is that this is a case where making sure that the rebate reaches low-income families is both the efficient and the just thing to do.  Liberals spend a lot of time arguing about the value of justice when it conflicts with efficiency, but there’s no conflict here, and this point isn’t getting enough attention.

  • Efficiency:  If people get their rebate checks and stick them in the bank, this doesn’t actually stimulate the economy.  It only makes a difference when people spend their money, putting more money into the pocket of the people they’re buying from, and so on and so forth.  (This is in fact the argument behind Bush’s much maligned response to 9/11, encouraging people to go out and shop…)  And economists overwhelmingly agree that low-income people are more likely to go out and spend the additional money, because they’re more likely to have urgent unmet needs.  Upper-income people are more likely to stick the money in the bank.  All the news stories use a big screen TV as the example of what people might buy with the rebate, but upper income people are more likely to already have a big TV.  And especially if they think a recession is coming, it makes sense to build up a bit of a cushion.  (The CBO report is also unequivocal that business tax credits are inefficient stimulus, but the Dems seem to have already folded on that front.)
  • Justice: You can make reasonable moral arguments that it makes sense to spread this windfall payment out equally among everyone in the US, or that it makes sense to give more to those who are most in need.  But what the Bush proposal would do is give less to those who are most in need and most to those who don’t need it.  Their claim is that they’re giving it to "everyone who pays taxes" but that’s a lie.  They want to only include people who pay federal income taxes, which totally excludes a huge chunk of low-income families — who do pay payroll taxes (for Medicare and Social Security), sales taxes, etc.  Moreover, families who are in the 10 percent bracket would only get a partial credit.

This should be a no-brainer.  But the Administration is proving once again that it places knee-jerk opposition to progressive taxation over common sense, and the Democrats in Congress haven’t consistently shown the backbone needed to stand up.  So call in this morning and demand a stimulus package that is both just and efficient.

Updated 1/24/2008:  Bush, Pelosi and Boehner announced their agreement today.  The good news is that at least a partial rebate — $300 — will go to anyone who earned at least $3000 (unclear what the reference year is, or the phase-in range, or any of that).  The bad news is that as part of the compromise, the House Democrats both accepted business tax credits that none of the economists think will do any good and gave in on demands for extended unemployment insurance and a temporary increase in food stamp benefits.  On the Senate side, the Dems are at least making noises about holding the line on including an extension of unemployment benefits.  So if you’re just reading this, and are inclined to make some calls, that’s probably the issue to focus on.

3 Responses to “Efficiency and justice”

  1. Ethel Says:

    I’m coming to the conclusion that people don’t care about the poor. They care about the middle class. Well, I care about the poor, and will be scanning the words of presidential candidates for the words “poor” and “middle class”. The more times any candidate talks about aiding the poor and not just the middle calss, the more points they will get and the more likely they are to get my vote. When I scan voting records, one of several main questions I will ask is, “How does this affect the poor?”
    I strongly believe that what helps the poorest people in our nation is generally going to have the biggest long-term positive effect on our nation. $500 to a poor person has the potential to change their life.
    For us when we were at our poorest and receiving government aid about 1.5 years ago, $500 would have instantly gone towards a babysitter so I could have the time to interview and get a job and back to work months earlier than I did – instead, I had to wait until family had time to watch our kids for us for free. Now it would go into savings, towards our home buying fund; we are now making 2.5 times our old income with fewer expenses (healthcare is free from work now, yay white collar work!).

  2. Christine Says:

    I am a little confused about how this stimulas package for any economic level, will help the economy even in the short term. Low to middle income people are going to pay debt or bills with the money and upper income will save it. Either way no one seems to buying non-essential goods with the check. The last time Bush had a tax cut I received a $600 check and paid bills with it, not splurge on things I would like, but do not need. I agree with you Elizabeth, this rebate should go to people who need it. My household income did not need that money at all. For higher income people $600 is not alot of money compared with people that really need it to hold off foreclosure, eviction, medical costs, college tuition, etc.

  3. Laurie Says:

    Thanks for this post — I didn’t know a lot about this issue before and now I have contacted my representatives!

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