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More "Stimulus" Silliness

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02/07/2009

Move over, Mr. Obama — Dan Newman has figured out the solution to all our stimulus woes:

When I’m struggling, a small reduction in costs isn’t going to persuade me to create a new position. At a huge company, that might add up to another job, but for me the choice of whether to create a job rests on only one thing: customer demand.

That’s where the government can help right now. Investment in infrastructure and education may pay off in the long run, but those jobs and projects take time to create. What small businesses need, immediately, is healthy demand for their goods and services.

The rebate checks of last year aimed to provide just that, but most Americans saved the money or used it to pay down debt. Less than 20 percent went to bolster consumer spending. There’s little reason to expect more from the proposed $1,000-per-household tax cut in the current stimulus bill.

A reduction in sales tax has still bigger problems. In 2001, there was a Senate proposal to reimburse states for lost income, but the legislation collapsed while lawmakers were trying to gain cooperation from each state legislature.

A better choice would be something Americans are likely to spend, and without huge logistical headaches: a gift card. By sending every taxpayer a $2,000 debit card, the government stimulates spending directly. The card doesn’t get deposited with a bank, a step that greatly reduced the use of last year’s rebate checks for new spending, and with a defined expiration time, perhaps a year, the program could help precisely while other programs get underway.

The American Gift Card could bear a picture of Lady Liberty, since it may be used for whatever taxpayers wish: smarter clothes, dinners out, a weekend away, a new heater. And as gift cards tend to be used in person, they are of particular interest to local businesses.

Gift cards have a nationwide redemption rate of 80 percent. If such debit cards were used at the same rate, the cost of the program would be $270 billion, for a greater effect at less cost than the proposed tax breaks.

And such cards allow people to spend where they find it most valuable, obviating debate about where the government “should” spend money. Consumers will choose what things they need most, and, whatever those are, they would be more affordable.

So, the government won’t tell tell consumers where to spend money — but they’re not allowed to save it (or — Heaven forbid — pay off their existing debts!) Spending is always a social good. Of course, it would be simpler to abolish sales, income and payroll taxes altogether, but that won’t drive demand the way a massive “gift card” orgy will. And it goes without saying that the government would never use its control of a gift card program to, say, monitor consumer spending habits and exploit that information for political purposes. That would be downright nutty.

Skip Oliva is a writer and paralegal in Virginia (skip@skipoliva.com).

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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