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August 11, 2008

ATTACKING THE OBAMA ECONOMIC PLAN: JUMP START THE ECONOMY

ATTACKING THE OBAMA ECONOMIC PLAN: JUMP START THE ECONOMY

Obama’s economic policy section entitled “Jumpstart the Economy” focuses primarily on working class individuals. An objective person reading this section would likely conclude that the poorer someone is, the more cuts (rebates, handouts) they would receive.

Solution: Provide immediate tax relief, up to $500 for 150 million American workers. While Obama estimates the cost of this proposal to be $35 Billion, it is actually closer to $75 Billion (unless he plans on giving an estimated $150 to each worker, substantially lower than promised).

In addition to this, it hands the American people a lump sum amount of cash, which they are more likely to spend then save. This does not jive with solving one of Obama’s economic problems (low savings rate). If the tax cut was a permanent one, Americans could take home around $10 to $20 per pay period. This would gradually support the economy, instead of having one giant splurge, then nothing to show for it. Obama should have learned from the failed Bush stimulus package that handing Americans cash does not solve our economic problems.

Solution: Provide direct aid to lower and middle class seniors. By providing $250 to each senior, Obama hopes to do the same as mentioned above. “These payments would not alter the Social Security program and would not use revenue from the trust fund.” While the latter may be true, providing select supplemental coverage to those on Social Security is a direct violation of how the program was founded. Social Security was supposed to be a temporary and universal solution for Americans to fall back on.

Now, it is permanent and Obama wants to make it available to only a select group, while all of us pay into it! If he were to pay every American in the system $250, the total cost would be $12 billion, slightly higher than the $10 billion that Obama projects. Other than this, the same reasons for failure from the direct tax handout to workers from above also apply. Why should we increase Americans dependence on the government for their livelihoods? Should we not explore ways to decrease that need?

So far, we have wasted $87 billion.

Solution: Provide a $10 Billion fund to help families avoid foreclosure.

This is a very bad idea. First, like Social Security, the government is not allowed to maintain “funds.” This fund, like Social Security would have to be spent as soon as Congress receives the money and then have bonds issued in place of the funds to help finance it. So, instead of using $10 billion to help homeowners, we are doing that plus financing another $10 billion in debt!

Whatever happened to individual accountability? If you buy a house that you cannot afford, you should not receive government handouts and taxpayer dollars to stay in it. Furthermore, if the government takes a strong position to not bailout these banks, many financing institutions will cave in and refinance instead of holding out, foreclosing, and holding an illiquid asset.

Solution: Provide $10 billion in economic assistance to state and local governments that may be struggling as a result of the housing market. The struggle comes in the fact that these governments will receive less in tax revenue since homeowners have vacated. This is overblown. Part of the budgeting deficits from state and local governments has come from poor planning. These same governments ran deficits in 2004 and 2005 when the housing market was at its strongest (California).

In addition to this, many foreclosed homes are still owned by the banks. The banks, therefore, are responsible for paying the property taxes associated with the mortgage. State and local governments still receive a proportion of their tax revenues from foreclosed properties. When budgeting in an economic downturn, governments should not expect to spend the same amount of money and not run a deficit. Let’s not reward such stupidity.

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