The real bailout prescription

Banks Only

It seems like I am in a statistical state-of-mind lately.
If you were to go to the IRS website you will find the total number of Individual Income Tax Returns for the year 2008 is: 156,297,000 (Source: http://www.irs.gov/taxstats/ –>Filing Season Statistics –>Filing Season Weekly Reports –> Report for filing year 2008 –> End of Year End Report.)

Let’s take the top 25% of tax payers out and we are left with 117 million individuals.
Next, let’s take the $3.8 Trillion (anticipated government spending across current and pending stimulus and bailouts including Bush bailout) and distribute it evenly to the 117M individuals that filed taxes.

You will arrive at the astounding number of $32,478!

That’s what we all could have gotten (except for the top 25% of earners who shouldn’t need it) instead of the current morass of bailouts and stimulus.

Let’s play this hypothetical scenario out a little further:
Imagine how fast our economy would have recovered if we were given this money, income tax free in a special account, to spend within two years within United States including purchase of airline tickets to fly out of United States (money spent abroad will not count). For any one with credit card loan or mortgage default, there would be additional stipulation that they pay off the loans/mortgage first. I am sure IRS can think of many other stipulations (and that would be fine). At the end of each of the two years we all would have to submit receipts to ensure we complied with the stipulations.

It is clear that the model I am suggesting is more efficient since the money spent by each one of the 117 million recipients would directly benefit one of 300 million people in the US or a firm/corporation they work for. The money could have been used for:
• 1. Starting/enhancing a small business
• 2. Purchasing a house — money could be used for down payment or home improvement
• 3. Loan pay-off – mortgage or credit card
• 4. Purchase – cars, electronics, clothing, etc.
• 5. Pleasure – travel, restaurants or on hobbies

Consider the positive affects – real-state market is all about sentiment – with buying power in hand, home purchase would have gone up, helping stabilize prices thus wiping/reducing so called toxic assets held by banks. Banks become healthy due to aforementioned affect but also have health restored due to defaulters paying up (at least in part). Unemployment is stemmed as spending ensures small and big businesses stop laying off and begin hiring, state government make 6% on the average on sales tax from all purchases and can balance their budget, stop cutting programs and in infrastructure projects. Car companies benefit too.

With this approach we also trust our country in to one of America’s core tenets — individualism, by allowing individuals to spend/invest and hence control how they grow small businesses, their ideas and restore American financial health.
So why instead did we choose to dole out money in a manner that  is getting rather negative reviews and also ensures that large majority of this money is once again locked up with the very few and no equality of purpose achieved?
I would like to believe that there is no malice or co-conspirators operating in government for the financial big-wigs but just lack of imagination and falling back on to existing playbook. But then some say I am too trusting.

What do you think?

—-Added on 5/1/09 ——

I am adding this because some of the feedback I have been given seems to indicate that people think this will help for two years and two years only and then we will be back to square one.

Such criticism misses two basic points:

1. The plan I propose is in competition with the current bailout+stimulus plan and the simple point I am making is that I believe giving 33K to each individual in the lower 75% bracket will be more beneficial to the overall economy than the current bailout+stimulus plan.

2. The idea, even behind the current plan is that it acts like a jump-start to the economy — after the engine starts, it will know how to run. My plan follows the same the plan — jump start the banks, real estate market, state government. etc. and then they will know how to run. If the current bailout will work, then using the same logic, my plan will also work.

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4 Responses

  1. Awesome Idea dude…at the same time this will not be fixing the root cause. You are just postponing the effect, which is inevitable with the existing capitalist philosphy.

    • Do you actually believe much will change? We seem to be in the hip pockets of the finance corporations now and it seems into the future. Did you see Wall Street is going right back to where they were before the crash? I had hopes, and I am really glad we’ve Obama in the White House, but….

      • Hi Martin,

        I like the phrase,”hip pocket.” We indeed are in the hip pocket of the financial corporations and I share your fears — not much will change.
        Obama administration has chosen truce over war. They have made peace with their pre-election enemies very fast in the name of prudence.
        I don’t fault them for making peace — always a noble goal — I fault them for the “terms” of the peace treaty. In affect, no terms for the bankers and their protecters….Obama administration has proven to be too scared and never called the bankers bluff. I wish they had done some out of the box thinking like I suggested in the post.

  2. The idea of not giving the money (what money? its borrowed) to banks amd instead giving it to taxpayers actually floated past my desk on the internet last year during the Bush Syndrome. I like it then and I like it now. But its true, the good guys made peace (surrendered) just like Pakistan made peace with the Taliban in Swat. (They are locked in war now.) We are not going to see the light of day again because the financial corporations own the sky. The futility of hope.

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