diet coke for breakfast

Friday, May 30, 2003

Posted by Jake
Battle on Child Tax Credit Intensifies in the Capital

Olympia Snowe, you suck at logic.

"This ill-founded decision creates a two-tier system under the child tax credit, penalizing low-income working families who need the help most," Ms. Snowe said. "Not only is this unfair, but it further undermines the stimulus portion of the child credit," since it is low-income people who would be most likely to spend the refund.

Wherever shall I begin?

1) It doesn't create a two-tier system. It creates a three tier system. The rich also do not recieve that tax cut, so a universal equity argument doesn't work. Actually there is a two-tier system. The Earned Income Tax Credit (the second largest program to help the poor whereby checks are mailed to Americans who do not pay taxes) does not apply over a certain income. By the same logic, we should apply that to all Americans.

2) You can't have stimulus unless you are lowering the governments take on taxes. This increases the amount of money in the market that is available for spending (I will get to that, hold on). Thus, taking a certain amount of money from one group -- say the rich -- and giving it to another -- say the poor -- will not decrease the amount of money consumed by the government and will not therefore cause a stimulus. In fact, it will probably reduce the amount of money transferred due to the cost of hiring people to do the transferring. Robin Hood was cute, but he was not an economist, and clearly neither is Sen. Snowe.

3) It is correct that lower income people are more likely to spend than upper income people. What are upper income people likely to do? Well, I got to tell ya, it ain't putting the money in a mattress. They are either going to invest it or put it in savings. What will the bank do with it? Most likely invest it or loan it out to other banks. Most economists would agree, however, that the stimulus from this package is much more likely to come from the tax breaks for investors than the increase in consumer spending. Consumer spending is good and necessary for recovery, but not likely to result in a persistent recovery. Rather, it is capital investment which is likely get us out of this recession, hence a tax cut on dividends and reduction in capital gains taxes.


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