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Stimulation-palooza moves forward: Pelosi, Boehner reach agreement

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By Michelle Malkin  •  January 24, 2008 10:35 AM

Here it comes:

Democratic and Republican congressional leaders reached a tentative deal Thursday on tax rebates of $300 to $1,200 per family and business tax cuts to jolt the slumping economy.

Congressional officials close to the negotiations said House Speaker Nancy Pelosi and Republican Leader John Boehner of Ohio reached agreement in principle in a telephone call Thursday morning.

The officials, speaking on condition of anonymity, said the two wanted key members of their parties to sign off on the accord before any announcement.

The movement came as the White House said agreement seemed imminent. “Our understanding is there is no final deal yet but they are making progress,” presidential spokeswoman Dana Perino said early Thursday.

Pelosi, D-Calif., agreed to drop increases in food stamp and unemployment benefits during a Wednesday meeting in exchange for gaining rebates of at least $300 for almost everyone earning a paycheck, including low-income earners who make too little to pay income taxes.

Families with children would receive an additional $300 per child, subject to an overall cap of perhaps $1,200, according to a senior House aide who outlined the deal on condition of anonymity in advance of formal adoption of the whole package. Rebates would go to people earning below a certain income cap, likely individuals earning $75,000 or less and couples with incomes of $150,000 or less.

Another element of the plan is a package of tax breaks for businesses that could cost as much as $70 billion, far more than had been expected, a senior House aide and a Democratic lobbyist said.

Borrow and spend to borrow and spend. How’s that deficit?:

The deficit for the current budget year will jump to about $250 billion under Congressional Budget Office figures released Wednesday, as a weaker economy and lower corporate profits weigh on the government’s fiscal ledger.
And that figure does not reflect more than $100 billion in red ink from an economic stimulus measure in the works…

…House Budget Committee Chairman John Spratt Jr., D-S.C., said the 2008 deficit might reach $379 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.

Don’t you love farce?

***

Much-needed wisdom from economist Don Boudreaux:

The calls are loud to put more money into the hands of ordinary Americans in hopes that they will spend – not save – it, thereby boosting the overall economy.

Such stimulus, however, is futile. Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created.

If it comes from taxes, the value of Jones’s stimulus check is offset by the greater taxes paid by Smith, who will then have fewer dollars to spend or invest. If Uncle Sam borrows to pay for the stimulus checks, this borrowing takes money out of the private sector. Any dollars borrowed – whether from foreigners or fellow Americans – for purposes of stimulus would have been spent or invested in other ways were they not loaned to the government.

The only other means of paying for such stimulus is for the Federal Reserve to create new money. Unfortunately, this option leads inevitably to inflation.

All Americans wind up with more dollars in their wallets but also paying higher prices in the stores. Prosperity is not created by raining down upon the populace more monochrome pictures of dead statesmen…

…”It’s only when the tide goes out that you learn who’s been swimming naked.” That saying, credited to Warren Buffett, points to the important – if painful – role that recessions play: moving money from bad investments to sound ones. Delaying this adjustment with the hallucinogen of easy money does no one any favors over the long-run.

Spending power is not so much the fuel for economic growth as it is its reward. And the key to economic growth is investment that raises worker productivity.

The best way for policymakers to foster such growth is to avoid panicking over any current economic downswing. Instead, they should focus on getting the economic fundamentals right. Such emphasis might not make things better – or even make things appear to be better – today, but it will make our tomorrows as bright as possible.

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