[SERIOUS STUFF] Stimulus package explained

Except there is no stimulus check like you got last year. It's in the form of lower payroll taxes starting sometime in June.

 

i guess they figure if you're unemployed, you're saving a ton of money in payroll taxes so naturally, you'll be able to afford those big ticket items and stimulate the economy.

 

Stimulus checks have proven to be ineffective. Here's a good article about why Obama's team is pushing for payroll tax reductions.

http://www.newyorker.com/talk/financial/2009/01/26/090126ta_talk_surowiecki

A Smarter Stimulus
by James Surowiecki
January 26, 2009 Text Size:

Cutting taxes is usually a surefire political winner. Yet Barack Obama’s plan to include more than a hundred billion dollars in individual tax rebates in his stimulus package has earned him criticism from both ends of the political spectrum. Critics in his own party think the rebate, which Obama wants to distribute by reducing people’s withholding payments, will be too small to make a difference—the equivalent of an extra forty dollars or so a month. Naysayers from the right maintain that, because the tax rebate is a onetime event rather than a permanent reduction in tax rates, it will have only a negligible effect. Skeptics on both sides worry that most people will save the rebate rather than spend it.

The criticism isn’t unwarranted. The record of past tax rebates is checkered, and forty bucks a month doesn’t sound like much. But the very things that seem unusual about Obama’s rebate plan—that it will be handed out by reducing withholding, instead of in one lump sum, and that it will add a small but steady amount to Americans’ take-home pay—are precisely why it’s more likely to succeed.

Past tax rebates, as many economists have argued in recent weeks, haven’t seemed to boost consumption as much as was hoped. Some estimates suggest that when a rebate was handed out in 2001 less than half of it was spent. And while the results of last year’s rebate seem to have been somewhat more encouraging, much of it still went unspent. One explanation for why rebates don’t have a bigger impact is that they don’t affect what Milton Friedman called people’s “permanent income.” Friedman argued that people’s spending is determined by what they think their income will be over time: they change their spending habits only if they think they’re going to be permanently wealthier or poorer.

The permanent-income hypothesis is elegant, but studies have shown that it’s not always an accurate description of the way people decide how to spend and save. A more compelling explanation for why rebates haven’t worked very well is that they have been handed out as lump sums. You might think that handing people a big chunk of change is a perfect way to get them to spend it. But it isn’t, because people don’t treat all windfalls as found money. Instead, in the words of the behavioral economist Richard Thaler, people put different windfalls in different “mental accounts,” which in turn influences what they do with the money. Where the money comes from can have a big impact on whether people spend it or save it: casino winnings are more likely to be spent than, say, money from an inheritance. The framing of a windfall is important, too: a recent study by the business professors Nicholas Epley and Ayelet Gneezy showed that when a tax rebate was presented as a bonus it was more likely to be spent than when it was presented as a refund. And the size of the windfall matters a lot: the bigger the windfall the more likely it is to be saved. One fascinating study of Israelis who received reparations from Germany found that those who received the biggest payments spent very little of the money, while those who received small payments spent it all.

The key factor in these kinds of distinctions, Thaler’s work suggests, is whether people think of a windfall as wealth or as income. If they think of it as wealth, they’re more likely to save it, and if they think of it as income they’re more likely to spend it. That’s because many people tend to base their spending not on their long-term earning potential or on their assets but on what they think of as their current income, an amount best defined by what’s in their regular paycheck. When that number goes up, so does people’s spending. In Thaler’s words, “People tend to consume from income and leave perceived ‘wealth’ alone.”

So what does this mean for making a rebate work? If you want people to spend the money, you don’t want to give them one big check, because that makes it more likely that they’ll think of it as an increase in their wealth and save it. Instead, you want to give them small amounts over time. And you want the rebate to show up as an increase in people’s take-home pay, because an increase in steady income is more likely to translate into an increase in spending. What can accomplish both of these goals? Reducing people’s withholding payments.

It may seem odd that framing the same policy in different ways will change the way people respond to that policy. But it’s well established that the way choices are framed often has a huge impact on the decisions people make. In a recent experiment, Valrie Chambers and Marilyn Spencer found that, just as Obama’s proposal suggests, people were more likely to spend a tax refund when it was handed out in monthly installments than in one lump payment.

There’s even some history to draw on in this regard. In 1992, the first President Bush temporarily reduced people’s withholding payments. He didn’t cut taxes—people still owed the same amount at the end of the year—but the move made people’s take-home pay look better than it was. In textbook economics, this should have had no impact on spending. Yet one survey suggests that almost half of the people planned to spend most of their rebate. If the effect was that large with a tax cut that didn’t even exist, it should be significantly bigger when the government is handing out real money. On its own, Obama’s rebate plan isn’t going to resurrect the economy. But it’s a policy that works with people as they are, rather than as we imagine they should be. And that’s a stimulus in itself. ♦

 

don't forget about the local area street pharmacist

 

those go to mexico or colombia.

 

Interesting article. Another way to present money to people and have them spend it would be to give people a "debit" card with x number of dollars on it and an expiration date, as in if it isn't spent by a certain date, it is lost.

 

the prostitutes dont pay taxes thats unamerican or is it?

 

Leave Geithner out of this.

 

 
"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation."

                                                                          -- Dr. Adrian Rogers , 1931 to 2005

 

 

Here in Nevada, they're required to register with the state (outside of Clark County).

 

In before D&D!

 

In before revolutions being fought over lesser things.

 

well, i didn't get a check last year and I'm not actually paying payroll taxes per se, but when I get my unemployment check I buy beer, so I win and I'm helping the economy...

 

All I know is I went down the list and I'm not benefiting from a single thing.

 

If you don't work or you're retired you'll get a one time $250 payment.

I don't know about the rest of you guys, but I get more cash back from credit card companies than I will from this stimulus package, which averages to about 8 extra dollars in your pocket each pay period. Of course I don't benefit from any of this because I earn more than the threshold. Idiot Obama.

 

They are trickling out the money in hopes that you will spend it. If they give it to you all at once they believe you will save it, which doesn't do any good. You need to go more into debt, not less.

 

This.

 

Bingo.