Spitting on a forest fire

Sometimes, I truly wonder what Democrats are thinking. In today’s Wall Street Journal, Jackie Calmes writes that the Obama and Clinton are trying to get ahead of the economic downturn and make it a campaign issue;

With the ailing economy emerging as the 2008 campaign’s top issue, Sen. Clinton said Friday she will call in the Senate for $70 billion in emergency funds directed to housing, energy and unemployment assistance. If conditions worsen, she said, Congress should also provide a one-time $40 billion tax rebate for low- and middle-class workers to spur consumer spending.

A 40 billion dollar tax rebate for low and middle-class workers? So how much is that? Well, the Bureau of Labor Statistics says there are 153,191,000 civilian workers. If we skim off the top 10% of people that can be considered higher-wage earners (over $100,000) we have 137,871,900 that are middle – lower class workers. Divide that into $40 billion and that comes out to $290.12. We’ll be rolling in it! I’ll finally be able to afford that downpayment on a Wii!
But Obama’s plan is even more laughable;

Mr. Obama’s campaign said he will unveil proposed stimulus legislation in coming days. His plan would likely include expediting a $500-a-person tax credit already proposed by the Illinois senator for low- and middle-class workers. He says the tax credit would benefit an estimated 150 million Americans.

A $500/person tax credit in a 10% tax environment is $50/person in terms of real cash. A family of five would save $250 on their taxes – if they paid the 10% rate, but no one does after various other factors are figured into the income taxes. Whoopee! That Wii keeps getting closer!

The plans of the two leading Democratic presidential contenders mostly serve as clues about how they would react if they were in the White House.

That’s the scary part. By giving tax credits and rebates, the two Democrats are furthering the illusion that government controls money in the country. An across-the-board tax cut is out of the question, though, that would further the truth that we don’t need government to make more money.

Yes, George Bush gave us an anemic tax rebate – but it was coupled with tax cuts that stimulated business and likely fended off a post 9-11 recession. The rebate made consumers feel good about the economy in the short term and the tax cuts made business feel good for the long term health of the economy. Bush also increased the amounts we can save for retirement, pumping investment money into companies – we can bet Democrats will never want to bump up the amount of money we can save independently.

The truth is; government can do nothing to offset economic downturns. And they shouldn’t. They can cushion the effect with monetary policies, but they can’t stop weaker markets. Which is good. When the market turns south, that’s when I buy. It’s like waiting until after Christmas to do your shopping when prices are more reasonable.

In fact, in 2002, when my traditional IRA lost half of it’s value, I recharacterized it to a Roth IRA, paid half of the taxes that I would have a year before, and by May 2003 it recovered it’s value – including what I’d paid in taxes. It’s called taking advantage of a bad situation.

Category: Economy, Politics