The Sham of the Bush-Pelosi Tax Rebate Economic Stimulus-- that could cost a Trillion Dollars

By Bill Burkett

From 1972 through 1980, I was a Department of Commerce, Economic Development Administration employee as an Economic Development Specialist. In life, we find natural fits and that was mine. I was really good at it; and received numerous regional and national accolades for my proficiency. With that as a basis for my stated opinion I am compelled to comment on this public drive by President Bush and the Democrats to place a band-aid on the American economy.

Understanding the Economic "drivers" of America has led us to fifty years of a few positive experiences and a whole lot of politicized negatives. The President and Speaker both understand that over 57% of all voters were neither voters nor spenders in 1988, when most of the underlying bad policy began to drive down our economic principles and ability to heal ourselves through true supply and demand – free market principles.

The Bush/Pelosi package of tax rebates that is already awash in the political news hour is NOT an economic stimulus package, because it again applies remedies in places that do not stimulate re-growth.

Tax cuts will always be disproportional to the pain index and those that feel the pain the most. The Reagan theory is that tax cuts stimulus should be "trickle down" driven - and maintain the fairness concept that those that pay, should be rebated. When in truth, if tax collection was truly fairness driven, that logic might apply, but since tax policy is vastly skewed the logic is false. One can not credibly use such logic, without fairness across the board.

Yet, Nancy Pelosi and others have already jumped on this bandwagon because they have also allowed the non-sense notion that consumer spending drives the American economy to rule economic policy.

I don’t want to jump too hard on Ronald Reagan to those that were born after his presidency and have been driven to idolize him. His economic policy was actually that of David Stockman. It was called supply-side economics. The name implied that the policies to realign and accumulate wealth and investment would be realized through inertia within job and economic investment within America. What actually happened was the newly acquired and concentrated wealth was far more fluid and mobile; less controllable; and more greed influenced than idealistically intended. More investment dollars were exported to develop burgeoning and in some cases, third-World economic investment because you could simply get more bang for the buck, more return on investment in those underdeveloped economies; with less competition and less risk. This unbridled and uncontrolled policy, instead created a runaway competition to export industrial capacity to lower labor cost areas, for example. The patriotic zeal that was envisioned and skillfully communicated as only Reagan could do had been hijacked by personal and corporate zeal. The negative stigma of investing overseas first, rather than in America first was never checked post-Reagan and still undermines the true American economy.

So when I hear the phrase that America’s economy has become service based, I recognize this reality as a result of poor economic policy that still has not been reversed. This is also using economic terms to people who don’t want to understand economic principles as a cover for bad decision making in the past. Economic principles are not easily understood because they are not tangible; yet are as basic and painful as reconciling and balancing the family checkbook.

When I hear the new mantra that this is now a consumer spending based economy, I cringe for numerous reasons. First, consumers can not spend money they can not earn. And without jobs that provide more than bare necessities, disposable income does not provide the ability to spend. No amount of handout changes that truth.

This notion is purely a political and journalistic cover for poor policy of building economies world wide first and America last. Globalization is the next generation sham principle of that same failed policy. While we can not isolate from the World and its economy, we can not export our ability to be self-sustaining.

Within all of this foundation of principle, I hope to comment using the inconsistencies of political speak of both parties as headed by both Bush and Pelosi and explain why this notion of tax rebates is a new round of poor economic policy.

Stimulus as a means of Recovery

Stimulating consumer spending as an economic stimulus is pure hogwash. It has no real affect. Giving the average American a fifty dollar bill will not change anything. It, in fact, is an inflationary action and the inflationary impacts will far outstrip the true value of that $50 average rebate. Yet the direct cost would initially be $15 billion dollars and indirectly cost nearer seven times that amount.

It doesn't alter the continuous rise in costs - true inflation as opposed to inflation as measured by the revised, revised statistics of today. When we measured inflation in the 1970s, we truly measured inflation. I've kept an inflation barometer based upon the formulas we used to measure inflation before Reagan began to gerrymander the numbers for political gain, since he was unable to truly solve the problems of inflation and falling productivity within the US. The headlines of 1977 were prime interest rates of 17% and true inflation over 11%. By 1981, the numbers had fallen only slightly. Using the same formulas, the second quarter of 2007 would have yielded a true inflation rate of 9.3%; while the Congress and President only quoted a 2.3% cost of living rate for social security recipients. This was not by accident. In fact, it was a continuation of bad policy; reflected by gerrymandered numbers with intent to use social security recipients to help balance a staggering budget.

The measures of economic strength/weakness applied by most economists working within the banking industry include the “net cost” of money. Simply stated, this is the prime interest rate less the true inflation rate. This determines the true worth of investment. Do the comparisons to determine whether this is a good time to invest and then factor in the housing meltdowns that still have not been fully realized. Again, we are dealing with several factors of which only the tip of the iceberg is yet seen, on some.

1977-1988 were the root cause years of today’s dilemma; when after the failing of this country to pay for the Vietnam War, we drove up inflation and interest rates and sought a political solution instead of an economic one. We’ve never been able to face economic reality since – not even within the Clinton years when the budget was balanced by inordinate earnings of the technology bubble.

The net effect of this political policy was that we simply printed more money and priced not only our products, but the cost of building our products out of the world-wide competitive marketplace. Once we factor in the devastating monetary policy, we understand that gasoline that has a pain index to those using the dollar, has a pain index of $2 to those using the Euro and only one dollar within the producing states. This disproportionate pain again exacerbates the domestic economic dilemma. And no, it is not an option to convert the US system from the dollar to the Euro.

We also took away the critical key to economic correction - PERSONAL SAVINGS - by encouraging spending in tough times rather than encouraging savings as was accented in the 1880s to recover from the post Civil War Depression and again in the 1930s/1940s to recover from World War I and the poor political economic policy of the consumer based roaring twenties.

We are so far out of kilter, that I'm not sure how we can get back into shape without a major depression which will again level the playing field.

BOTH political parties, by claiming and reinforcing the false claim that this is a consumer spending based economy are doing nothing but building the requirement for bailing out overbuilt industries, including consumer based service industries.

It's far easier to understand - economically - that when we have too much capacity within a single industry, the industry is overbuilt and therefore must retract. As a result the excess capacity, by pure law of supply and demand, will be trimmed by lack of ability to market its production and the least efficient or capitalized will be closed down purely by lack of profit. In America, we currently have numerous such overbuilt business and service sectors that have been artificially propped up by poor policy. Certainly, it can be argued, that allowing the free market to take these effects will cause a deep economic recession where job loss will be prevalent. This would be far less painful, if America had not been allowed to become so dependent on consumerism; on imports; and thus a nose-diving dollar. But the facts remain. The only thing holding up this economy has long been false assertions and claims, and the motive for maintaining is to protect businesses at the expense of consumers, rather than vice versa.

The economic bubble must be deflated rather than allowed to collapse if this nation’s economic future will be recovered. There will be much pain, and gnashing of teeth. Great institutions will be forced to face their own folly and many may not survive. In an uncontrolled manner, the damage will be cataclysmic. Within a controlled process, the pain will be extreme, but manageable.

Not once have I heard EITHER Bush or Pelosi talk about the causes of this near hyper inflation (when measured in true economic terms).

The critical cause is FUEL and ENERGY.

The alternative energy bill is again, a politically driven sham to provide economic kickbacks primarily to Archer Daniels Midland - (look up the political contributions of ADM and its primary ownership Mark Andreas and associates and their history and you understand both cause and affect). Florida Power and Light and others have also been direct recipients of these kickbacks.

Under any previous American historical picture, regulations which artificially withheld production within the US would be altered to affect policy; and if gouging was taking place, regulatory authority would be implemented to correct it.

But deregulation has taken away any control or ability to respond. Instead corporate power and monopolistic control have allowed the stranglehold of excessive energy costs, and limited true alternatives to the internal combustion engine and other technological solutions to be slowed or stopped.

Now comes the Bush-Pelosi Washington solution.

Using the rebate process as a salve rather than true remedy also places the US government's fiscal house in even worse order. Believe me; in order to cover the outlays of such a regressive measure, the budget will go further into the red; requiring higher interest offsets within the prime rate and exacerbating the overall problem. This is a dangerous cycle that will be driven within the economy; one that will last three to five times the pain of just facing the problem to begin with.

Adding just one quarter percent to the cost of a mortgage will cost the average home owner, AND RENTER an additional $375 per year. But the deleterious affect of this policy will likely drive up true interest four to five times that - simply on its own. So what is the true cost of this $50 rebate check? I would say that by the time the rebates are privatized, and the cost of government is added, that a $50 stimulus rebate will actually cost each consumer in the neighborhood of $650-700.

Bush/Pelosi are thinking of $800 per individual taxpayer. Quick math says the up-front cost will be $120 billion and the real cost about 6.3 times that amount or almost a trillion dollars.

This is stupid economic policy.

Since we have now gone almost thirty years within the charade that our economy is a consumer spending economy - a picture that can not sustain itself - then how do you face the issue today?

1. Face the root causes. The recently passed energy bill didn't face a single cause. On the one hand, we speak of being a consumer spending economy, but every stimulus given within that energy bill was given to corporate and business structures. Give tax advantages TO CONSUMERS for Energy savings from weatherizing, to developing solar systems; buying more efficient cars, etc. This allows consumers to drive the economic turnaround rather than business being paid to protect its own gluttonous behavior that got us into this mess in the first place.

Think of how on the one hand we call this a consumer spending economy, but inconsistently apply the band aid to the provider.

2. Reward efficiency at every turn through the individual tax system. When tax savings can drive decision making, banks will lend money to make this happen to 70+% of Americans with good credit scores. This also allows banks a stimulus to do the right thing, rather than chasing the wrong economic policy as they have done now for the last 23 years.

3. BALANCE THE BUDGET and pay as we go. We can't dig out of this mess without quitting digging. When you go deeper and deeper with your budget, you have to quit digging before a recovery can take place. We must now pay for the boondoggles of politics and follies of foreign policy that have gone unpaid. Yes, this means that economic decisions now must strongly influence and maybe even dictate a major portion of foreign policy. Imperialism is not an economically sustainable option. America has learned that four times in history and supposedly learned by watching the rise and fall of other supreme nations including Great Britian This means that War in perpetuity - the War on Terror or other Wars against factions rather than States - are simply not prosecutable until we have regained our economic balance. It also means that "bridges to no-Where, Alaska" should become not only impeachable offenses, but criminally prosecutable ones, as an example. Using the philosophy that this is a consumer-spending economy encourages waste and corruption. Neither is tolerable within the building blocks of a strong economy.

1. Realign the tax system for fairness; not stimulus. Wealth realignment has been allowed to occur over the past thirty years under the guise of economic stimulus. Any time local communities want to justify a bond issue today, they call it economic and job development. This is literally false economic policy and politically boondoggling. So is the practice of realigning wealth and protecting the ‘haves’ under the umbrella that they are the job providers. Within any tax system that makes exceptions for one over another will become loopholes that encourage waste and corruption as well. For example, why are Wall Street investors given special tax consideration over those that, for example, invest in plant, equipment, real estate or jobs? Is this sound policy, or a reward to the ‘have’s’? If so, we now have not only the class warfare of the ‘have’s’ and ‘have nots’ but a new super ‘elite have’s’ from which to provide different economic policy.

If this is a consumer based economy, then consumer based fairness must apply. A Flat Tax proposal without upper limits - based not on deductions, but on pure raw income may have to be applied to remedy this gross mismanagement of public policy in America. I am not in favor of it, from a theoretical basis, but even the two richest Americans tout that we have gone way too far in protections for the “have's” and taken away the ability to survive and thrive from those working the hardest. I am far more supportive of the theoretical edge of a flat tax as compared to the smokescreen issue of a simple sales tax. With a sales tax, immediately, the issue of deductibles for business and job creation will influence policy, and the warping of that approach will end with a further distortion of fairness. Discipline is not a strong suit in Washington.

5. Finally, all sacrifices must be jointly shared. This seems simple, yet, the last three generations have worked the hardest to insure this as a slogan but not as true policy. This principle if applied across the board would mean that all citizens; regardless of race, color, creed, gender or age would share the burden of financing, equipping, defending and prospering in America. In times of War, all Americans would share the burden to pay the costs of both blood and treasure. Every American is a ‘common’ stockholder with one share of stock in this nation. There are no ‘preferred’ stockholders.