Wednesday, December 10, 2008

Every once in a while, a clunker 

I am confused by the following statement from my Representative, Michele Bachmann:

�As American families save-up for modest holiday Christmas celebrations, Washington has continued its bailout spending binge. Not only is this continued plunge toward an $11 trillion debt failing to calm the markets, but it is also mortgaging away our children�s future.

�There are alternatives to this bailout bonanza. For instance, I am not only supporting legislation to save the second half of Congress� $700 billion bailout. I'm also supporting a plan to put the remaining $350 billion right back where it belongs: in your pocket. We�ll return the money to taxpayers in the form of a 2-month holiday on all social security and income tax.

This will give the economy a real much-needed boost and give American taxpayers much-needed relief. And, perhaps, finally cool Congress� dangerous bailout fever.�

Emphasis mine. There will be an opportunity to vote on the $350 billion next year; one reason for this proposal would be to not give the Obama Treasury the opportunity to use that money. And that might be right. If the bill to disburse the second $350 billion tranche were defeated, that money would not be spent.

But where does that money come from? It actually must come from additional government borrowing, since the federal budget is already in deficit. The FY 09 deficit would be reduced by $350 billion from what it might otherwise be if we anticipated that $350 billion being spent. CBO reports only those funds that have already been expended, which has been $191 billion so far from TARP. If you spend $350 billion by a tax holiday, that will have to be added to the deficit. We will not be "returning money". We will be borrowing against future tax receipts to give temporary tax relief.

Indeed, as the Tax Foundation noted last week, because TARP spends money to buy assets (though at a higher-than-market price), the cost to the budget of this tax holiday proposal is greater than the cost of TARP.
Suspending personal income and payroll taxes for two months would cost the federal government about $330 billion ...; using that money to buy more preferred stock would cost only the amount by which the government overpays, almost surely much less than $330 billion.
As I recall, Rep. Bachmann opposed the gas-tax holiday last summer because it "deplet[ed] the highway trust fund we need to build bridges." It's money you would have to raise later. So why doesn't a payroll and income tax holiday deplete the budget? Besides which, it's not much different than a rebate -- households mostly end up saving the money, and it doesn't stimulate. I like many of Rep. Bachmann's ideas on fiscal policy, but this one was a clunker.

UPDATE: Link to different Bachmann statement added. What I posted was text of an actuality I received this morning.

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