Argument: A tax rebate is merely wealth re-distribution

Issue Report: Bush economic stimulus plan


  • Brian M. Riedl. “Tax Rebates Will Not Stimulate The Economy”. Heritage Foundation. January 10, 2008 – “Critics contend that rebates ‘inject’ new money into the economy, increasing demand and therefore production. But every dollar that government rebates ‘inject’ into the economy must first be taxed or borrowed out of the economy (and even money borrowed from foreigners brings a reduction in net exports). No new spending power is created. It is merely redistributed from one group of people to another.”
  • “We’re All Keynesians Now”. Wall Street Journal, Review and Outlook. January 18, 2008 – “We’re all for putting more money in the hands of the poor and moderate earners, especially via stronger economic growth that will give them better paying jobs. But the $250 or $500 one-time rebate check they may now receive has to come from somewhere. The feds will pay for it either by taxing or borrowing from someone else, and those people will have that much less to spend or invest themselves. We are thus supposed to believe it is “stimulating” to take money from one pocket and hand it to another.
To put it another way, when the government calculates gross domestic product, it expressly omits transfer payments. It does so because GDP is the total of goods and services produced in the economy, and transfer payments produce no goods and services. The poor will spend those payments on something, but the amount they thus “inject” into the economy will be offset by whatever the government has to tax or borrow to fund the transfers.”
  • Daniel Mitchell, senior fellow at the Cato Institute, said in January, 2008 – “The president’s proposed stimulus based on ‘temporary’ tax cuts designed to boost ‘consumer spending’ will not work. It is a disappointing re-run of the misguided policies of Jimmy Carter. Rebates are particularly disappointing because they resuscitate the discredited Keynesian notion that an economy benefits when the government borrows money from people in one sector of the economy and distributes it to people in another sector of the economy. Economic growth occurs when there is an increase in national income, not a redistribution of national income. That is why lower marginal tax rates on work, saving, and investment are the best short-term and long-term strategy for faster growth. But such tax rate reductions should be permanent since temporary tax cuts — even well-designed tax rate reductions rather than rebates — do little more than generate economic activity today at the expense of less activity in the future.”[1]