Tax Rebate Plan
Posted: February 1, 2008
When I heard the news about the federal government's plan to spend up to $150 billion by sending checks to taxpayers as a way to spur the economy, I immediately thought about my trip to Las Vegas last week. Unfortunately, I did not do very well financially. In fact, I am convinced that I spent more money gambling than I normally do because I did not properly evaluate the value of a chip versus real cash. Of course, once I returned home, I realized that I will now have to work more to make up for my losses.
Likewise, I wonder if we all realize that the money to likely be forwarded to us in the next six weeks in an effort to avoid a recession is nothing more than a hand-out that should be considered a loan. The last time the government handed out money in the form of a rebate was in 2001. A number of studies concluded that only 22 percent of the money distributed was spent within the first few months of receipt. Frankly, I hope that those who receive anywhere from $600-$1,200 (plus more for children) will either spend the stipend to support local businesses or pay down their debt on credit cards, home mortgages and/or automobile loans.
Since it is an election year, Congress will be sure to pass legislation in the coming days that politicians hope will appease their constituents. But the whole process will be flawed if business tax breaks are not included in the program. In 2001, Congress included an accelerated depreciation component in the legislation for purchases of capital equipment. The measure allowed companies to immediately deduct 30 percent of capital investments made in 2002 and declare a 50 percent deduction in the following two years. As a result, capital expenditures increased and fueled a renewed economy. In my opinion, manufacturing firms would take full advantage of the tax break if it was made available to them again.
Whatever the outcome of the government's economic stimulus package, I am reminded of the chips I laid down on the gambling tables in Las Vegas. I gambled as if the chips had no monetary value. And although I am confident that I will recoup my poor investment last weekend by working harder, I wonder how many taxpayers will consider their check from the federal government as a gift as opposed to something that will have to be paid back over time.