I watch the history network a lot. Several months ago, I was watching it at my parent’s house and my Dad made the comment that its a great channel but depressing to watch in the sense all you see is history repeating itself as people make the same mistakes over and over again regardless of the era.
Thus, this whole idea of going into massive deficits as part of a stimulus makes me uneasy. I wonder if all we are doing is recreating the welfare state of the previous generation, which was substantially dismantled in the 1990′s, and substituting the excesses of private enterprise with the excesses of bureaucracy in the name of a stimulus.
For example, the Canadian stimulus package was introduced this week as part of the budget (because Canada has a minority government, there could be weeks and months of negotiations before it is passed). Look at the comments in Million Dollar Journey’s post on the budget concerning the tax credit for home renovations or Michael James on Money reporting on new (unspecified) regulations on credit card issuers.
How will these questions be answered and regulations put in place? You got it-the machinery of government needs to expand and it is always a trend that temporary government programs tend to become permanent ones no matter what the government says when it introduces a program (remember that personal income tax was supposed to be a temporary war measure).
Thus, are we doing nothing more than providing a stimulus for the expansion of government again? As reported in the local paper this week, it is easy to announce money will be spent but hard to actually put the money on the ground after the bureaucrats want to create processes to manage it (the example cited was the Feds said they would fund a subway extension to the ‘burbs- 2.5 years ago and no money has flowed- but all that has happened is paper being pushed).
If government really wanted to provide instant relief and stimulus, why not declare a tax holiday? Simply put, no one has to pay taxes for a period of time. You don’t need to craft processes, laws and regulations for a tax holiday. You simply don’t collect tax for a while. You put money in people’s pockets through instant tax relief and given that this temporary measure is easy to stop, the government does not have to expand in the process (which is why they won’t do it). I do not claim any originality on this idea- it has been raised as a concept by many others as a cheap and timely way to provide relief but works against the interest of government so it won’t happen.
I am by no means a raging libertian and I see the need for regulation to rein excesses in the system. What I worry about is the pendulum swinging too far the other way from a unregulated market to an over-regulated market and from the state taking little to no role as private enterprise abused the system to the state taking too great of a role and suffocating innovation and enterprise. As with everything, the only excess should be moderation.
Anyone else worried about this?
Have a great weekend.
January 30th, 2009 at 12:12 pm
I think you bring up an interesting point. I’m a big history channel watcher and it does seem like we just keep making the same mistakes over and over again.
When I’m not watching the history channel, I’m a software developer. I can say that while the idea of a tax free holiday sounds good in theory, in practice it may be impossible. Taxes are ingrained into the software that we use to buy food, gas, movies, and toys. If this kind of tax flexibility was not put into the system, the implementation of this holiday could be sporadic and uneven. Even if notice was given months in advance, many small businesses couldn’t afford to make this change.
I’m in Oregon, USA; so we don’t have a sales tax here. Of course, I received our stimulus checks last year, but all we did with that was pay down debt. We were ‘bad’ in the sense that we didn’t use it for stimulating the local economy by spending it on consumer goods that we didn’t really need anyways.
I’m not sure that stimulus checks or tax holidays are the answer for either of our countries. I’m sure the only thing we can agree on is that something must be done.
January 30th, 2009 at 3:51 pm
The problem with a tax holiday is that it is by definition temporary and temporary/one time items do not goose the economy as well as other methods.
January 30th, 2009 at 11:38 pm
The problem with a tax holiday or any temporary tax cut is that it is temporary. Since it is temporary, people do not change their behavior. They would not spend more, because they know that tax holiday is not sustainable and will end in the future. At the same time, the government is accumulating even more debt than these stimulus package because there is no income.
January 31st, 2009 at 2:17 pm
I think the problem with a tax holiday is that while it’s cheap to administer, it’s not cheap overall: the stimulus money gets diluted when it’s spread out across every Canadian and then doesn’t have much effect overall. Billions and billions can go out the door (or rather, not come in in the first place), but only minor effects are felt in individual household budgets.
Instead I think stimuli should be targeted to have a big impact in some areas, hopefully the ones that will help lead us out of a recession/depression (and if not, at least give us some swanky infrastructure to show for it). You know, get the banks lending, the factories producing, and the construction crews working, and hope that they will in turn take care of the accountants, lawyers, bloggers, and bakers.