Now we are getting closer to the root of the problem. It's like our government & corporations have sold out the middle class and small business owners. Everyone is digging in just to try to survive. How about we use the stimulus money to drop taxes, encourage business & manufacturing to stay in the US . " bite the bitter pill " and try to turn our country around. Wait a second... the stimulus money is borrowed tax money !!!! Which we don't have, we are leveraging our childrens future. At least they will have nice roads to drive on. We need a revolution in this country.
Reducing taxes is a curious concept right now. As you say, the stimulus is borrowed money, so using that money to reduce taxes would be exactly the same as going to an ATM, charging a $200 cash advance on your Visa card, then writing a $200 check to Visa.
Remember, taxes are the government's income. If you reduce taxes without reducing spending, you increase debt. One factoid often glossed over with the expiration of the Bush tax cuts in January 2011 is that if the Bush tax cuts are maintained past their expiration date it will add yet another $3.7 trillion to the debt over the next 10 years. Why would you want to reduce income when debt needs to be paid off?
Well, if you leave more money in the hands of businesses and consumers then they buy more, right? Well, it was right up until about 24 months ago, but now a curious thing has happened. The American consumer has stopped buying, and has become frugal. From the Washington Post 8/4/2010-
Consumers slashed their credit card debt levels by nearly $1,700 per household in 2009, according to the Federal Reserve, and experts say a down economy will continue to leave borrowers with a distaste for debt.
According to the Fed's monthly G.19 consumer credit report released Friday, credit card balances fell sharply again in December. Americans shed $8.5 billion in debt, marking a record 15th straight month of decline. The report considers various types of consumer debt, including revolving credit -- a loan category comprised almost entirely of credit card debt -- as well as nonrevolving debt, which includes such debt as auto loans, student loans and loans for mobile homes, boats and trailers. Overall, revolving debt fell to $866 billion from a revised total of $874.5 billion in November.
Americans' credit card debt stood at $975.2 billion in September 2008. The 15 monthly declines since then have seen U.S. cardholders eliminate $109.2 billion in credit card debt. That means the average U.S. household with credit card debt -- of which there are roughly 54 million, according to government data -- has eliminated roughly $2,022 in credit card debt during that period.
Also from the Post, same day-
The Commerce Department reported Tuesday that the personal savings rate -- the amount of each paycheck that goes unspent -- jumped to 6.4 percent in June, the highest rate since June 2009. That's a far cry from the heady days of the spending boom when Americans set aside less than 1 percent of their paychecks.
So, the old trickle down, supply side Reagan/Clinton/Bush economic policy might not work. Indications are if you give the American small business or consumer more money through lower taxes (increasing US debt in the process), they will save it or pay down credit card debt. I know if the government gave me $1000 right now I would reduce debt with it, I would not buy anything.
Ahh, you say, then let's reduce government spending to adjust for the tax cuts. Good concept, but that will cause unemployment and economic slowdown as businesses that rely on government spending cut production. This is an interesting column from the Chicago Tribune last week-
http://www.chicagotribune.com/busin...government-spending-20100908,0,2620256.column
So now you are hearing muted cries to have another stimulus package, which, like a tax cut, increases debt. Will it grow jobs? Well, the last one didn't seem to.
And the interesting thing about this problem is the classic party line battle. One party's policy got us into this mess, the other party's policy has not gotten us out of it. Yet, people think an election will solve it. It won't. I'll bet you an Italian Beef at the Bergland Bay Bar that no matter who wins in November there will be one constant...total federal debt will continue to accelerate.
I feel sorry for Indy500, he's gonna pay for this mess most of his working life.
Sorry for the long post....