Bush Can Keep His Freaking $800

In 2001, The Commander Guy decided that the economy needed a jump-start in order to avoid a recession. His plan was to offer a so-called tax rebate of $300 to $600 per household, with the stated reason being that people would spend the money and thus make everything rosy once more.

There was one problem: Bush was wrong.

Surprising as it is, the 2001 "rebate" had only a minor effect on economic stimulus, according to this from Christopher L. House, Matthew D. Shapiro and Joel Slemrod of the University of Michigan’s economics department:

Direct evidence on consumption and investment spending in response to the tax changes suggests that these policies provided only modest stimulus.

...

Official statistics reflect ... that most of the rebate was saved. Specifically, personal saving jumped in 2001 by precisely the amount suggested by the survey results. Since they were mainly saved, the 2001 advanced payments provided little stimulus.

They go on to say that the portion of the 2001 stimulus package that gave business owners tax breaks on certain investments were of little help, as well:

Because the policy was narrowly targeted, because equipment investment is only about 8% of the economy, and because investment incentives squeeze out consumption spending, the aggregate effects of bonus depreciation were modest.

Bush's 2001 "rebate" was coupled with his tax cuts. Reagan believed that giving tax cuts to the richest Americans would cause them to spend more on business investments, thus creating a "trickle-down" effect of more jobs for the middle class. George H.W. Bush referred to this as "voodoo economics." Our current President, however, has sided with Reagan in this debate. Of his tax cuts, House, Shapiro and Slemrod say:

Most of the tax cuts went to high-income taxpayers, who tend to bank additional income rather than spend it. The most promising element was a tax rebate of up to $600 sent to almost all taxpayers even before they had filed tax returns. But a study by Shapiro and Slemrod found that only about one-quarter of rebate recipients actually spent the money. Most was saved or used to pay down debt and thus did little to boost demand. And taxpayers faced a lot of confusion in reconciling the advance payments with their actual taxes due when they filed tax returns.

The one thing that irked me the most about Bush's "rebate" was that it wasn't a rebate at all. It was an advance on expected tax refunds. By coincidence, 2001 was the first year that I actually owed money on my return. Also a coincidence, I owed just over $300. So if President George wants to send me an $800 advance on next year's return, I say he can keep it.