Playing With the Economy

Up first, a look at the current situation with the potential recession and possible government actions. With my interests in the public policy aspects of the financial world, I've been paying close attention to the proposed economic stimulus package, which took the first step towards reality today when it passed the House of Representatives. This type of bill has a potential for tremendous impact nation-wide, and for that reason, the bill is interesting in the corporate and personal finance worlds. Simply put, the proposed bill would provide a tax rebate of $600 to individual taxpayers and $1,200 to married couples filing together. In addition, all parents would receive a second rebate of $300 for each dependent child. For businesses, the bill would allow more tax deductions for investments. Finally, the bill includes additional provisions designed to ease restrictions on new and refinanced mortgages.

These measures all sound fantastic and might be just what we need. But, from the economics perspective, I can't help but think about the signals the bill sends. After telling people for years to "save, save, save," this bill says "You didn't? No problem." Every public policy has trade-offs and an overwhelming majority of our elected officials believe the advantages of this bill outweigh the potential signals about saving, and I trust they understand the implications of bailing the economy out through tax rebates and business incentives. The Senate takes up the bill in the near future and changes in that body could lead to a possibly longer-than-expected ride to our checks from the government. In the most general sense, I think we all agree we need taxes--at least at some level and in some form. But if this gets passed, I'm sure everyone will enjoy getting money from Uncle Sam more than the usual giving. It could be a nice change of pace.