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Big government welfare programs will not stimulate the economy

For Immediate Release. February 11 , 2008 On February 7, 2008, the Senate passed by 81-16  H.R. 5140 As Amended; Economic Stimulus Act of 2008, a $168 billion  economic plan that would give tax rebates of $600.00 for individuals, $1,200 for couples-to most taxpayers, plus an additional $300 per child.  Full rebates would be awarded to individuals making up to $75,000 annually and couples earning up to a $150,000 and those making more than that or too little to owe taxes receiving smaller checks.

A $300 tax rebate will be given to people who paid no income taxes but earned at least $3,000- including through Social Security or veterans' disability benefits.  

The bill would also temporarily raise the limit on Federal-Housing Administration loans and the cap on loans that Fannie Mae and Freddie Mac can purchase to $729, 750.  

A few hours after the Senate leaders ended their stalemate over the measure the House of Representatives passed it by a 380-34 vote. 

Over two years the plan adds $161 billion to the deficit to provide welfare payments for individuals to spend, and tax relief of almost $50 billion to businesses to make new investments.   

“The economy will not be stimulated by tax rebates.  For these rebates the government must borrow the funds which means there will be an increase in the trade deficit or less money available for investment,“ said Dr. Joel P. Rutkowski, President of the American Voice Institute of Public Policy.   

Tax rebates were the centerpiece of the 2001 tax cuts. To families $600 rebate checks were mailed in the spring and summer of 2,001.  To provide these rebates, Washington borrowed billions from the capital investment markets. As a result consumer spending increased with a seven percent annualized growth, and investment spending correspondingly declined by 23 percent in the fourth quarter of 2001. The simple redistribution from investment to consumption did not create new wealth and the economy grew at a sluggish 1.6 percent annualized rate.  By the next quarter all traces of the rebate policy effectively disappeared. Through much of 2002 the economy remained stagnant with consumer spending declining to 1.4 percent annualized growth and from its steep decline investment spending partly recovered with a 13.6 percent annual growth. 

When economy produces more goods and services than it did the previous year an economy grows. Since they do not encourage productivity or wealth creation tax rebates fail. No one has to work, save, invest or create any new wealth to receive the tax rebate. 

Troubling as well as disturbing is that the Federal government has increased its role in the mortgage market that will crowd out private companies. The measure allows the Federal government to be able to acquire more mortgages.   The Federal government gives extensive special privileges to Freddie Mac and Fannie Mae which would allow the government according to to purchase more expensive mortgages valued at up to $729,750 which is well above the median home price. 

Dr. Rutkowski added, “An economic stimulus plan should not be used to bail out banks that make bad loans, to expand government interference in the economy or continue to add to the burden of current and future generations to pay down this nations national debt.”

For Interviews Contact:

Joel P. Rutkowski, P.h.D.
President, The American Voice Institute Of Public Policy

jrutkowski@americanvoiceinstitute.org

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