Friday, February 20, 2009

Stimulus - Sticker Shock

The stimulus package passed. Instead of everything being sunshine & lollipops, I'm hearing there's already talk about a second stimulus, and possibly a third. Why not? TARP led to TARP 2, and the auto bailout didn't last more than a couple of months before it became known as the first auto bailout.

I've read about costs for individual portions of the bill, the total amount of spending, the number of jobs to be created, the various tax credits - both those which were cut and those kept. I was finding it hard to locate the actual cost to the individual tax payer. Until Monday or Tuesday of this week.

William La Juenesse was on Fox Business (my favorite cable news/business channel, by the way), with exactly the numbers I'd been searching for. I found his earlier interview at - in the Videos section, under "Sticker Shock." I couldn't find a written copy of the numbers, the automatic transcript was jumbled, and the video couldn't be embedded, so I listened through the clip, pencil in hand.

La Juenesse started with the official cost of the Stimulus Bill - $787 Billion, and questioned where the money would be coming from. 15% of the taxes collected in the US come from corporate taxes, so the majority will be paid by individuals. (That individuals also pay corporate taxes in the form of higher prices is a completely separate topic.)

La Juenesse spoke with John Lott, Economics Professor and author of Freedomnomics (great book), and with Kevin Hassett, a Columbia Univ. Economic Professor about the costs to the individuals.

Heritage has the cost at $8,000/year, per household, but Lott and Hassett answered questions I find much more interesting.

Current Deficit + Bank Bailout = $3.7 Trillion Cost per Household = $27,000 With Stimulus Expense = $40,000
The average household income is pretty close to $40,000, in case you didn't know.

Question 1: If we had to pay for the Stimulus Package tomorrow, in a lump sum, how much would it cost?
Tax Bracket Tax Bill

Question 2: If we finance at today's interest rates (30 years @ 4.5%), what will it cost?
Tax Bracket Tax Bill

That's almost double the lump sum cost.

In all the talk of the spending - sorry - stimulus, the politicians are quick to point out the tax breaks. Sounds great, until you hear that the tax breaks amount to $400/year.

$400, against a personal tax bill of $2,500 to $90,000. Or, over 30 years, $12,000, against the $5,000 to $168,000 of borrowed money. This is without any additional deficit spending on new & improved stimulating bailouts.

We all know this is how it's going to be paid. There's nothing there. The treasury will be printing money, causing us all to pay the hidden tax of inflation. And when that's not enough, what's next? Increasing income tax? Extra payroll deductions? Value Added Tax?

As La Juenesse closed his segment...
It's going to cost either you and I or our children. One or the other, but we have to pay the piper.

The video clip continues with Peter Morici, Economic Professor from University of Maryland, discussing why the stimulus will fail, even when it delivers portions of what's promised - such as over 2 million jobs (temporary jobs, he points out). If you don't know Morici, you should watch his congressional testimony during hearings on the first auto bailout .

Adding two blogs to my regular reading list:
Angry Bear. Good stuff, even when it's not good news.
Predictably Irrational. Dan Ariely, author of the book Predictably Irrational. Also links up to the feed for his Arming the Donkeys podcast.


rdan said...

We have agreement with Peter Morici on trade policies and correlations for monetary policy...Angry Bear is not his blog however, not that we would mind having him.

mappchik said...

Thanks for the correction. I had something like 10 tabs of reading going at the time, and must have started running things together.

Slamdunk said...

Ahh, the stimulus. I was impressed last week when I was contacted by a telemarketer who stated that I should "push 1 now to talk to a personal stimulus advisor." I was tempted to push the button, just so I didn't miss out on "my share."


mappchik said...

Really? I've seen the ad blurbs while browsing, but had no idea the telemarketing had begun.

One more reason to screen calls.