Stimulus statistics

by beksbks 10 Replies latest social current

• 

  beksbks

  Moody’s on economic stimulus package.

  January 25, 2008 at 5:47 am (Economic policy)
  Tags: economic stimulus, economy.com, Moody's

  This was issued two days ago, so the information is about the effects of different types of stimulus, not an analysis of the plan that came out today. Now unlike the Heritage Foundation, Moody’s reputation is built on their unbiased analysis.

  While the President’s nonrefundable tax rebate would help the struggling economy, a refundable rebate would be substantially more helpful. In a refundable tax rebate—favored by most Democrats—all households would receive the same size check regardless of how much they owe in income taxes. For example, at a cost of $100 billion, every U.S. household could receive a $900 check. The extra boost would come via the spending of households with very low incomes, who wouldn’t receive a nonrefundable rebate since they typically don’t owe income taxes. Moreover, higher income households that are more likely to save their rebate checks would receive less under a refundable plan.

  So in their analysis, providing support to those who don’t pay federal income tax is a better stimulus if you provide rebates. Now on to the key component in the eyes of the Heritage Foundation, the bonus deprecation, here is Moody’s take,

  The economic bang-for-the-buck of bonus depreciation is very modest (see table).[7] Indeed, of all the tax and spending policies considered, it provides the least amount of stimulus. Such incentives offer a limited boost because many businesses have difficulty quickly adjusting long-planned capital budgets. Moreover, most investment is made by businesses with no tax liability in the first place. Investment incentives also complicate matters for financially pressed state governments that base their business taxes on federal tax law.

  Ouch, that has got to hurt.

  Unfortunately the plan that was worked out today did not include an extension of unemployment insurance or increase in food stamp funding. This is very unfortunate as Moody’s, along with Joseph Stiglitz as reported yesterday, have said this is the best investment,

  Extending unemployment insurance and expanding food stamps are the most effective ways to prime the economy’s pump. A $1 increase in UI benefits generates an estimated $1.64 in near-term GDP; increasing food stamp payments by $1 boosts GDP by $1.73 (see table). People who receive these benefits are very hard-pressed and will spend any financial aid they receive within a few weeks. These programs are also already operating, and a benefit increase can be quickly delivered to recipients.

  The benefit of extending unemployment insurance goes beyond simply providing financial aid for the jobless, to more broadly shoring up household confidence. Nothing is more psychologically debilitating, even to those still employed, than watching unemployed friends and relatives lose benefits.

  On the topic of permanent tax cuts for the investor class, Moody’s doesn’t think that is particularly effective,

  Making permanent the current dividend income and capital gain tax rates would also be poor economic stimulus. The current 15% tax rate that most investors currently pay is set to soon expire and tax rates will jump. There is an argument that making them permanent would create some certainty for investors, who are currently uncertain about prospects for the stock and bond markets. But whatever the longer-term benefits, the near-term economic boost would be small. The problems plaguing financial markets are broad and deep and unlikely to be measurably affected by such a policy change. Moreover, even assuming with the most favorable financial markets, the stimulus potential of such a move is small; each $1 in net cost to the Treasury produces only 37 cents worth of GDP, according to our model.

  Here is their very nice table that is referenced.

  

  Their data makes government spending look a lot more effective than tax cuts. You can see that even with the tax cuts, those that are most effective are those that target low income, rebates for those don’t pay federal income taxes or payroll tax holiday.

  -Josh

  Don't know the blogger, but his source is Moody's http://en.wikipedia.org/wiki/Moody's

  http://endtheecho.wordpress.com/2008/01/25/moodys-on-economic-stimulus-package/
• 

  BurnTheShips

  The current stimulus package is a shit sandwich.

  BTS
• 

  beksbks

  I almost agree with you. He should not have let the Pubs stick so many tax cuts in.
• 

  BurnTheShips

  It isn't the tax cuts, at least those have a more immediate impact. Generally speaking, I support a tax cut for any reason, anytime. The problem is that a large part of the current shit sandwich is pork shit.

  BTS
• 

  beksbks

  Did you bother reading the OP?
• 

  BurnTheShips

  The economist that did this says the model assumes that getting money to people with lower incomes has a bigger impact because they do not have as much in savings and they will go out and spend the money right away. The model assumes that government spending will be a more effective stimulus than cuts because a portion of these cuts is saved rather than spent and also because consumer spending tends to gravitate more toward imported goods than government spending does (due to government contracting regs). There is an element of artificiality in the analysis: the longer term growth generated by tax cuts and infrastructure spending aren't taken into account in this model. It is only estimating a single year change. These are all modeled estimates using certain (artificial) constraints. These are not hard numbers. Also, Moody has played a pivotal role in the whole credit debacle due to their utterly unrealistic risk assessments-- especially regarding mortgage backed securities (which were the straw that broke the camel's back). I'm going to be very leery of anything turned out by them at this time.

  Synopsis: the package is a turd, and this economist from Moody's is trying to put some gift wrap on it. It still stinks.

  BTS
• 

  Farkel

  I have to chuckle at the way the Government thinks. Ooops! That's an oxymoron.

  It goes something like this:

  "Hey! Let's steal more money from the people."

  "Well, it looks like we stole so much from the people that we screwed up the Country, so let's give some of it back, and make them feel grateful to us for doing it."

  The problem here is that the Government can never give back as much of the excess that they stole because they operate like bookies. They always get a cut from every transaction. They do this because it takes government workers to process all that paper work and they have to use some of the money they stole to pay those workers to process the giving back of the excess money they stole.

  To make matters worse, when they give the money back, it is never on a par for the people they stole it from. They give back money they stole from rich people to people who never paid it in the first place and worse, they give money "back" to people who never paid any taxes at all. Even bookies don't do that.

  The solution to the Government bookies racket is for them to not steal so much in the first place and then there will never be a need to give any of it back.

  But that is too easy and too simple. Therefore, the Government will never do it.

  Farkel
• 

  kurtbethel

  I checked the numbers and the package comes out to $2750 per person. So if each household gets $900, perhaps $450 per person, who is getting that additional $2300 per person? I smell another ripoff.
• 

  DJK

  I don't think I could call putting money into unemployment and welfare, adjusting taxes to give me more or less money very much of a stimulus. I would rather see a plan to make unemployment drop and financial markets get back on their feet. I would call that a stimulus plan.
• 

  sammielee24

  No sense being too analytical about it any longer. No sense stating the obvious - that the government is corrupt and they are all thieves. No sense whining about the amount of debt created by another stimulus package or where the money is going or whether it's in a tax cut or a rebate check.

  I cut off the cable this week so I don't have to listen to 55 channels tell me the same political and financial crap that the basic 5 do.

  The debt cannot be paid and will not be paid. The US will become more protectionist and will have to fnd a way to rebuild it's manufacturing base that was given away to China. The standard of living is eroding and will at some point come to a stand still from which it will be rebuilt with all sorts of limitations and laws. (just on the news this week was some of the big banks pushing forclosure on people - not helping them keep their homes, a little more money scamming). There may be another war within 4 years that just happens to stir up some cash for the USA and moves it back upward faster than thought...may - be.

  In the end, I say bring it on. Spend as many trillions as has to be spent to increase the social programs that might end up being the only way that people survive. Did you see the dead guy in Detroit this week - all of him submerged in a block of ice with only his feet sticking out and people didn't bother to call the police? ..which leads me to the fact that some police forces are letting you file your claims for theft online now so you don't waste valuable officer time as they cut staffing but ..I digress...

  Either way - I'm all for increasing funds at the bottom since that is where it will be spent. It is a fact that those living nearest the bottom of the heap, must utilize all of their funds and will spend what they have - that will put more money into the economy. Those with more money, will simply save or invest those same funds and it will not go directly back into the economy as quickly or in the same way.

  At this point it can't be paid back. I've given up believing anything any single economist or statistic tells me...I don't believe in investors or financial strategists..I believe very little in government and nothing in the corporation. Sometimes I think humanity can't brutalize it's own and further and another day is upon me.....I say spend...right about now that old idea about guaranteed income stabilization even sounds good in the short term...the one good thing about all this right now though is that Obama, the guy with the guts and the brains is leading us through it and the fool is gone from office to let us move along.............sammieswife.