Last week, President Bush's proposed tax relief measure finally passed through the Senate after overcoming the stalemate that had stalled it for several weeks.
The original proposal made by President Bush recommended tax rebates ranging from $800 to $1,600 for families with household incomes of less than $150,000 a year. After the bill passed through the House of Representatives, though, the agreement was expanded to give each couple a $600 check, with an additional $300 per child. The House Bill would have also provided businesses with tax incentives totaling nearly $50 billion to encourage them to invest and create new jobs.
However, the Senate delayed the bill's passage because it sought to expand the Bush/House version of the bill to include tax rebates for more lower-income families and disabled veterans. With these entitlements included, the bill was delivered to the president, who plans on signing it within the week.
But what impact will these rebates have? Does the president expect a handout from the government to stave off the apparently looming recession?
While we may not be able to tell for some time if the president's stimulus package will be effective and swift enough to bolster the sagging U.S. economy, the hope is that the cash rebates will administer a quick shot in the arm to the economy because lower and middle-income Americans will spend their rebate checks on consumer goods. If consumers do spend the money that they receive, the president believes that their spending will buy time for longer-term business incentives to kick in and create new jobs, ultimately producing real GDP growth.
Essentially, Bush's economic plans closely resemble that of former President Reagan. Both presidents seem to fervently believe in trickle-down economics, a simple economic strategy in which tax cuts are given to the middle-class and rich citizens with the expectations that their spending will trickle down to the lower-class in the form of job creation, business growth and an increase in the GDP. This policy was a part of the chief rationale of why President Reagan was so deeply loved and revered by Americans. Plain and simple, his economics worked.
For instance, according to the Bureau of Economic Growth, the GDP recovered strongly after the 1982 recession and continued to grow during Reagan's years in office. Additionally, unemployment peaked at about 10.7 percent in 1982 but steadily diminished during the two Reagan terms as nearly 16 million jobs were created by his policies.
While Bush may be successful in leading the country through a recession, I believe that he must make spending cuts to escort the tax cuts as a matter of practicality.
After all, tax cuts can only give temporary relief if spending is not curbed. The money the government expends has to be paid off sometime, and if the government continues to squander our money uncontrollably, it will have to tax its citizens even more to pay for its endeavors.
But where do we look to cut spending? Many Americans would say that we should discontinue funding the war in Iraq, but we would be better served by cutting funds to a whole series of fruitless programs that exist outside the realm of the government's constitutional authority. Programs that should progressively be scratched from the government's initiative include social welfare, education and all other activities whose effectiveness could be improved by private institutions or individuals. By liberating itself from these activities, the government would free itself of a huge amount of expenditures which it could sequentially give back to its citizens. This would not only allow the government to make the present tax cuts permanent, but would also enable American consumers to put extra money into the U.S. economy. This way, we cut spending while not making ourselves vulnerable to defeat at the hands of terrorism.
So will Bush's plan succeed in the end? If Americans do spend the money they receive, the stimulus package will be triumphant in immobilizing the recession - temporarily. But if he really wants to advance our economy and leave behind a great legacy like Reagan, Bush must attempt to control the government's unrestrained spending practices and limit its undertakings. This will allow his tax cuts to stay in place and will position our country's economy back where it belongs: on top. Earnest is an economics freshman.
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