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The Top 6 Reasons Why the Tax Rebate Won't Stimulate the Economy

The Economic Stimulus Act of 2008, signed by President Bush and passed by the United States Congress, is a tax rebate of $600 per person or $1200 per couple to stimulate the United States out of the current economic slowdown. Even though President Bush does not publicly believe the U.S. is in a recession, he is willing to spend an estimated $152 billion dollars or 1% of the National Gross Domestic Product (GDP) to combat inflation or stagflation to prevent a recession. On the other hand, most economists now believe that the United States is in a recession and question if this tax rebate will be sufficient enough to stimulate the American economy.

Without further ado, here are the top 6 reasons why the Economic Stimulus Act of 2008 is believed insufficient to stimulate the U.S. economy.

  1. Most economists and politicians believe that most Americans will immediately spend their tax rebates. The problem is that most Americans will purchase merchandise and goods manufactured in other countries, thus stimulating the economies of other countries more than the United States. The stores in America will definitely profit from increased sales. However manufacturing jobs in America will not noticeably increase in number or in pay. The best hope for this stimulus package to work is the trickle down effects that stimulating other countries will have on the economy of the United States. In other words, if the economies of other countries improve, they will ultimately do more business with American companies.
  2. The American annual budget already borrows heavily from other countries, primarily China. This stimulus package is basically borrowing more money from China for Americans to buy more Chinese goods. As mentioned previously, this tax rebate will primarily help China and other countries much more than the United States. The problem is that this additional debt will have to be paid back with interests. Eventually, the U.S. government will not be able to borrow more money and will have to start paying back itsí debts. At this time in the near future, the American economy will be in a far worse shape than it is now and will be less likely to pay back itsí obligations.
  3. The best way to get out of a recession is by creating more jobs, and this rebate will not create many jobs in America. Also, this rebate amount is too little to encourage the creation of new businesses that would create new jobs. A large rebate or tax cut for new or small companies would be more beneficial in creating more jobs.
  4. One of the three biggest reasons why the economy needs stimulating is the mortgage crunch. This tax rebate does not increase the pay of employees so that they can keep up with their increasing monthly mortgage payments. At best, this is a one time financial aid to help people pay off their rising debts. Keep in mind that there is a $200 billion dollar mortgage bailout that makes the United States even more in debt to other countries (see reason #2 above for why this is bad).
  5. The second biggest reason why the economy needs stimulating is the cost of living or inflation is increasing faster than salaries. Actually, salaries and jobs are decreasing. The largest price increase is with oil and gas. This tax rebate does not increase the pay of jobs or create higher paying jobs, thus the tax rebate will most likely be spent on higher prices at the pump instead of improving the economy.
  6. The third and final biggest reason why the economy needs stimulating is the war in Iraq. This tax rebate actually aggravates the borrowing the Unites States is making, thus hurting the economy even further. This tax rebate does not even attempt to alleviate the problems with financing the war at all.
In conclusion, the Economic Stimulus Act of 2008 will provide a tax rebate that will be insufficient to pull the United States of America out of the recession. In fact, this tax rebate may hurt the American economy more than it helps.

by Phil for Humanity
on 03/13/2008

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