Friday, January 25, 2008

Will you be stimulated?...

If you haven't visited your tax guy or run your tax program, you may be surprised to find that $4 corn and $10 beans may have disqualified you for the rebate. So what's in the deal for you?
For those who pay income taxes, the 10% marginal rate would fall to zero for the first $6,000 in individual income or $12,000 in household income.

Rebates up to $600 per individual and $1,200 per family would gradually phase out for those earning above $75,000 and $150,000, respectively.

Eligible families also would receive a $300 rebate per child.

The package would let businesses deduct 50% of the cost of new equipment bought this year, saving firms $50 billion in "near-term" taxes, the White House said.

In addition, small businesses would be able to fully expense capital investments of up to $250,000. [More] [My emphasis]
Of course, every Senator running for reelection still want to get his/her fingerprints on the package, but the business breaks don't seem to be challenged. The targets are more toward the disadvantaged.
Other senators said they wanted to contribute their own provisions and Senate Majority Leader Harry Reid, a Nevada Democrat, said the House proposal's $150 billion price tag wouldn't be viewed as a ``magical figure.''

Reid, 68, said members of the Senate Finance Committee ``and other senators will work to improve the House package by adding funds for other initiatives that can boost the economy immediately, such as unemployment benefits, nutrition assistance, state relief and infrastructure investment.'' [More]
Of course, every dime of the stimulus money will be borrowed, and right at an inopportune time.
Yesterday, statistics released by the nonpartisan Congressional Budget Office projected that the federal deficit would grow to $250 billion in the current budget year. That would be a 53 percent increase from the $163 billion deficit in fiscal 2007.

If Congress approves the roughly $140 billion economic-stimulus plan now being discussed, the deficit for fiscal 2008, which began Oct. 1, could swell to almost $400 billion. The White House and Democratic and Republican lawmakers worked into last evening to agree on a package...

...Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government health care to interest on the national debt.

The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare.

"If we do something right now, like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice M. Rivlin, a former vice chairman of the Federal Reserve and now a senior researcher at the Brookings Institution, a center-left think tank.

"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the CBO from 1975 to 1983. "We have just made too many promises under our entitlement programs, and we're going to have to change course." [More]
This massive and continued borrowing all but assures, I think, an even lower dollar, suggesting (but not guaranteeing) continuing upward pressure on commodities (along with most other prices). It also hints the Fed may not be able to leave interest rates low for long, so any (re)financing we need to do in ag probably ought to get done before we emerge from the current slowdown.

But the really important aspect of the stimulus package is the means test: no joy for those making over a certain amount. Until recently there has been stiff resistance to means-testing, but I think the stimulus package (along with its growing use in other countries) strengthens the administration argument for similar limits for farm payments and furthermore firmly establishes a trend of means-testing to solve funding issues for popular programs.

This is where the growth in asset and income inequality begins to manifest consequences, regardless how economists measure it or if they even agree it exists. Excluding the wealthy from government benefits, once done successfully will be the solution of first choice thereafter simply because of the tiny number of voters impacted negatively.

History is not just being made inside agriculture, but across our whole culture and the world economy.

Make some notes for future reference.

1 comment:

Anonymous said...

I wish I had confidence that means testing would take off. The stimulus package notwithstanding, the current refusal of Congress to agree to Administration's proposal to limit farm program payments to people with an adjusted gross income of less the $200K (the wealthiest 2.5% of Americans) leads me to believe that the inherent weakness of a democracy is that Senators and Representatives get re-elected by giving their constituents money that other people worked hard for, and they really don't care about the equity or fairness of that income transfer. This is illustrated by the price USDA had to pay Vermont this week to get Secretary Schafer confirmed (story here: In other contexts this is called extortion.