Thursday, January 24, 2008

A Second Look at a Tax Rebate

In view of my Monday post on the temporary stimulus plan of G.W. Bush:

[1] Though no one directly challenged me on this, I did notice that a number of tax practitioners did not like the 2001 tax rebate for administrative reasons. I should have addressed this issue in the initial post--any rebate needs to done in a way that it does not confuse taxpayers on their 2007 tax returns. After all, the late-December AMT patch will provide plenty of confusion by itself.

[2] A legitimate challenge to the rebate--do we even need this? One could argue that the Fed rate cut is likely to increase the money supply enough to handle any slowdown in the economy from the housing tempest and that the stimulus may lead to increased inflation in 2009. Politically, however, the Republicans would be dead in the 2008 elections if they even considered ignoring the discomfort in the economy, so politics yet again likely will trump economics.

[3] Given, based on [2] above, that a temporary stimulus package is at least politically necessary, I continue to prefer a tax rebate to either a tax rate cut or a spending package because I believe that it is easier to end a rebate than a rate cut and MUCH easier to end a tax cut than a spending program.


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