Friday, February 13, 2009

MY Economic Stimulus Package - Part I: Better Roll out of the TAX BREAK

It doesn't take a genius to understand that part of the current stimulus package is about a return to spending by the citizens.

Most of us are trying to save money like mad, because:

1. The banks are not lending as easily or as readily as they once were
2. Invested fortunes have disappeared
3. Gas prices, food prices, all prices, have gone up considerably.
4. Jobs can disappear without a moments notice

The list above is not the problem, but a symptom of the problem. Our government and its financial advisor's believe that if you treat the symptoms, you cure the ill. This does not work. But for the sake of this ongoing blog, we will NOT debate the cause of said symptoms. Instead, we will roll out implementation, offer up alternate approaches, and cut to the bone.

Ready, Set...


The biggest part of this Economic Stimulus Package puts money back in people's pockets through payroll relief. The idea appears to be that an extra $9 in your paycheck will be used on something like a movie, going out to eat, etc...

RATIONALE and PROBLEM: The idea of timed distribution instead of one lump sum supposedly encourages usage over time. With that "pay raise" mentality, the psychology is that people will use up to their means. And in normal times this might be true, but we are in the "hoarding" mode. Which lacks complete rationality to begin with.

People will still save the money instead of spending it.

SOLUTION: The solution is truly a no-brainer and can be found in a recent government program. Over the last year, the government issued hard plastic discount cards for the highly anticipated (and poorly conceived) switch to digital TV. Each discount card was actually a credit card with an expiration date. (sample on right)

Using this model, the Fed can issue Tax Rebate cards the same way. Why rebate cards?

Cards offer a certain control/flexibility engine:

1. The cards can expire after a certain amount of time (say 1 year) returning the unused balance directly to the Fed)
2. The cards could not be redeemed for cash
3, The cards could be used for anything that you could pay with a credit card
4. There may be a mechanism in place to make certain that they can only be used domestically. This may include a ban on internet purchases which would also help local economies.

I am also pretty certain that once you activate your own card, it may be possible for the Feds to create a refill date. For instance, you get $200 for the first six months of the year and $200 for the second six months. But even the full amount WHICH HAS TO EXPIRE, would force citizens to spend it.

Spending is the key here folks.

A tax break to a failing economy is only good if people use the money.
Now, our consumption of durable goods is a conversation for a different day, but this part of the stimulus package was ill-conceived. My plan is better because it forced usage within a time frame or forfeiture.

The other elements will be discussed in full, but for now, it is time to break one element apart at a time and redesign it.

Oh, and the goal is not to argue, it is to brainstorm, so if you have any out-of the box approaches like mine, please post them here.


  1. Interesting reading, and a worthy attempt to provide commentary on a complex set of causes... a word on your tax rebate idea - on first blush, certainly a better delivery method with tighter recoup controls than currently offered, but the thing that is simply beyond the comprehension of the average consumer, is that a tax refund is not a refund; it's a return of overpayment from the payee - without F*CKING Interest thank you very much!!! What I'm leading up to in my own snarky way, is that there should be much higher incentives to put the tax witholding dynamic in tighter check... Avoid a massive debit for the Fed, and the unnecessary forced savings (w/o interest)... Better education should make it clear to people that shooting for paying a few hundred bucks come April 15th, is far more preferable to waiting for a massive payback of your own earned income that you've been sweettalked into doing without all year...
    Anyway, I humbly suggest your novel solution would in effect by a usurious limitation on funds that by law of liquidity are payable in cash... Of course I know my critique blows a hole in your primary spending incentive mechanism, but on the otherhand, I hope to see more from you in the future; good luck

  2. Since current rules appear not to apply in the rules of "finance" and market behavior, I shall not debate the subtle nuances that you bring up... for they are all valid.

    I believe the average consumer does in face understand that "a tax refund is not a refund". I believe that is part of the anger that is also developing.

    The point is to spark lively debate and offer "alternatives" with a potential for better outcome to purported purpose our elected officials are proposing.

    In upcoming installments, I suspect the reaction will be "you can't do that!" I will not try to shy away from making suggestions based on these limitations, specifically in a time when "I do not recall" is considered defense in front of a senate sub-committee.

    Insanity is doing the exact same thing over and over and expecting a different outcome.