It appears that the General Theory is on the president's reading list once again. Given that the economy appears to be headed for a slowdown this year, the Bush Administration is considering short-term tax relief as part of an "economic stimulus" package, according to an AP story today by Martin Crutsinger:
The Bush administration, faced with a deteriorating economy and a big jump in unemployment, said Friday it was considering an economic stimulus package that might include tax cuts to ward off a recession.
On Friday, the Labor Department reported that unemployment was at a two-year high of 5 percent in December, while employers clamped down on hiring for the month. The amount of new jobs employers added to their payrolls was at a four-year low.
Officials stressed that President Bush has not decided yet to offer a proposal but was looking at a variety of options with a plan possibly being unveiled around the time of his Jan. 28 State of the Union address.
"The president is always looking at options ... always talking to people and looking at data," Commerce Secretary Carlos Gutierrez said in an interview with The Associated Press.
...
White House spokesman Tony Fratto said tax cuts were an option being considered.
Bush in his first term included a tax refund of up to $300 per person to combat the impact of the 2001 recession. Private economists said another round of tax cuts would be the best approach to get money to people who would spend it.
Some suggested a one-year tax rebate of $500 might provide a sufficient shot-in-the-arm for the economy. But they stressed that the proposal would have to be passed quickly.
The extent to which short-run fiscal stimulus packages work in stabilization has been the subject of decades of research in macroeconomics leading researchers to draw differing conclusions. But we do know that rebate checks are not free. They cost revenue and are really no different than a spending program. And most economists on both the left and right would agree that rebate checks have little long-run Laffer Curve feedback effect. Finally, there is the administrative costs of sending out over 100 million checks.
Fire Isiah! New York City Council Threatens Madison Square Garden's Property Tax Exemption
The NY Times reports that the New York City Council is threatening to take away the property tax exemption for the World's Most Famous Arena, Madison Square Garden (MSG). This comes at a time when the Garden's biggest tenant is involved in scandal after scandal, not including the way the team is performing on the court, which could also be called a scandal.
While this move to take away a property tax exemption for the Garden is a step in the right direction in terms of public finance, the timing makes you realize that special tax provisions are always dependent upon the mercy of government officials. Government officials can giveth and taketh away tax credits, often for reasons that are arbitrary and in many cases downright ridiculous. To some degree, this may be one of them. While one city council member says the Knicks' performance on the court is not the main reason for this action, the Times quote suggests it could be playing some role:
“I’m not going to be so flippant as to say that the fact the Knicks have absolutely stunk up the basketball court is a reason to get rid of their tax exemption,” said Councilman Lewis A. Fidler, one of the proposal’s sponsors. “But I think certainly the manner in which they’ve conducted their business otherwise has certainly left people feeling less than warm and fuzzy for them.”
He added, “It has perhaps created an environment in which people are willing to pile on.”
I'm pretty confident that if the Knicks were 29-3 and in first place in the Atlantic Division (aka Celtics) instead of 8-24 and in the basement of the Atlantic Division, this issue would have likely not been brought up.
Helping Two-Legs Good, Helping Four-Legs Bad
Yesterday, the Oregon Tax Court handed down a decision about this Oregon law:
[The following] property owned...by...charitable...institutions shall be exempt from taxation:[...]
All real and personal property...dealing exclusively...to support a welfare program. As used in this subsection, 'welfare program' means the providing of food, shelter, clothing or health care, including dental service to needy persons without charge."
Needy persons. The Florence Area Humane Society applied for an exemption, and was denied because they care for needy animals. The Tax Court upheld the denial:
Here, the language of the statute is clear and unambiguous. It defines the target group (of thrift store sales) as certain needy persons. It does not include other entities, organizations, inanimate objects, things, or animals. By restricting that group to exclude animals specifically in the statute, the court cannot ignore the plain meaning of those words. Needy persons do not include animals.
When politicians start exempting certain groups from general taxes, they pick winners that pay no taxes and losers that pay higher taxes. Here, the line was arbitrarily drawn between charities that help needy people (winner) and charities that help needy animals (loser). Look for this law to be changed quickly, which means that taxes will inch a bit higher for everyone else.
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