The Tax Rebate Check, Or: How I Learned to Stop Worrying and Spend My Childrens’ Money
Mrs. Smith was a contented housewife, that is until she realized that the amount of time she could spend watching her favorite 4-D shows could increase from 8.00 hours to 8.25 hours per day if she upgraded her Acme Self-Cleaning Carpet from version 7.5 to 8.0.
Now, Mrs. Smith is normally a very patient woman - and it’s a good thing too! - since Mr. Smith never buys her the latest kitchen robots. Imagine her embarassment when Mr. Crunk, who lives two doors down on the left side of Oak Lane, bought Mrs. Crunk a GuarDawg 5000 in the limited edition Pink Schnauzer line for her birthday. Mr. Smith completely forgot her birthday all week at work (his excuse that he worked 4 hours overtime that week was lame. Plenty of men work 24 hours a week and don’t forget their wife’s birthday!), until frantically buying a hundred Self-Gardening Roses for her on the way home. They weren’t even her favorite color.
But her view on life was rapidly improving as she signed the door-to-door salesman’s sale receipt. Admittedly she had a bit of a twinge when she realized that she was going to have to garnish from the wages of her fourth child in order to satisfy her debt to Acme Inc. The retractable roof had been paid for by half the balance of Smith Jr.’s lifetime income. The house itself had been purchased with half the future wages of all of the Smith’s children.
Mrs. Smith didn’t look forward to telling her husband. He was always blithering about the budget, but it’s not like they were spending as much as the Ferguson’s on Chestnut Street! They’d sold the future wages of both their kids and their grandkids and hadn’t even had their first child yet!
She did hope that she and Mr. Smith would end up having at least four kids; Junior, their first, was a smart toddler with extra potential, but she and Mr. Smith had budgeted on the basis of three additional children. Call her old-fashioned, but she felt just a little bit guilty that her grandkids might end up paying for her new carpet, even if it was the nicest carpet to be found on Oak Lane in 2050.
This short story of mine was inspired by a work of science fiction that I read as a kid. Unfortunately I long ago forgot what the name of the original story was or where to find it, but insofar as I can remember I’ve been faithful to the general theme. Stories like these are why I devoured science fiction all through elementary school (until my father wisely, though unsuccessfully, banned the category in Junior High): insightful and exciting social commentary.
As ludicrous as it sounds for a family to spend the future wages of their unborn children, that is precisely what we as a nation are doing today. In just six or seven years my parents will be spending the money I’ve contributed to social security. The way things are going, by the time I’m retired I won’t be able to spend my kids’ contributions because the fund will have completely run out.
By spending more money each year than is received the government is borrowing against future earning potential. In all likelihood, because paying off the national debt is not politically viable, we are borrowing money from our kids to pay for what we want now.
Let me make it personal rather than talking about GDP, budgets, or earning potential. Your parents decide that they want a nicer house and so borrow the money that you had been saving up for your first car without even asking. You’d be pretty ticked. You would be even more annoyed if they never paid it back, leaving you with no car, a load of debt, AND interest payments on that debt which you didn’t incur. Would that be fair or ethical?
Most of us recently received a letter from the IRS saying that individuals would be receiving up to $600 in May as a result of the Economic Stimulus Act of 2008. This “stimulus” is unfunded, further dragging the budget into the red to the tune of $152 billion dollars. Admittedly $152 billion dollars is relatively small change when the national debt is nearly $10 trillion dollars or approximately $31,000 per person. But is it more acceptable if the amount borrowed is smaller? If your parents only take $100 dollars from your bank account instead of $10,000? Is this fair or ethical?
I don’t think so.
I prefer tile to carpet anyways.
The counter argument is that each American generation is at twice as wealthy as the last and therefore should be able to afford supporting their parents retirement. Lomborg makes a similar argument about future generations being better able to deal with the consequences of global warming economically than we are presently. So stop whinging and start making some real money
BTW their is a certain 90 year old who is refusing to accept the $300 the government wishes to give her because she thinks that it is wrong and stupid.
That may very well be true, but I think my gut reaction is against people not taking responsibility for their choices/actions. I have every right to purchase what I want, but I should be the one to pay for it, not my children. Similarly I have every right to smoke or drink or be fat, but I should pay the extra healthcare costs rather than spreading the burden among everyone covered in my healthcare group. Don’t you think the struggle of my generation, and of Americans in general to some degree, is to accept responsibility for our actions?
Than again, I am entitled to everything you have…(-;
I love my grandma and respect that she is more principled than I!
Interestingly, some libertarians favor the idea of a tax cut (or a rebate) anytime, anywhere, because they see it as the best way of checking government spending (Milton Friedman, for instance).
Remember, there are two sides to fiscal policy: spending and taxation. Your whole post seems to absolve the government of any need to adopt the most ethical solution when it is faced with a budgetary shortfall, which is simply to cut spending.
Also, it is strange of you to champion the individual ethic while simultaneously talking of what “we as a nation” are doing. There is no “we” here–”we” is not an actor. There are only individual actors making decisions, some of which have profound effects in the aggregate.
On utilitarian grounds, your father is right to point out that taxing the relatively poor present to subsidize the relatively affluent future might not make much sense. It is, however, ultimately a very philosophical question and one that I think is perhaps the most central to global warming policy (i.e. what is the proper discount rate).
Did I mention that I currently pay 10 percent of my income here in Germany to social security even though I’ll only be working here until the end of June? To be fair, I can make a claim for a refund when I return to the US, but even that is the equivalent of providing the German government with an interest free loan to fund benefits I will never receive. How’s that for unethical?
Oooh, Jeff, a knife in my heart! In smiting me you cite a man I greatly admire from an article in a newspaper I adore! Surely you could have just used the jawbone of an ass rather than an automatic rifle…:-)
Let me clarify my position. I would agree that the best, and most direct, way to shrink government would be spending cuts. This being a common conservative bugaboo I didn’t belabor the point in this post. Instead I wanted to focus on income. Conservatives nearly always back tax cuts/rebates/etc… and I sometimes doubt whether they consider that tax cuts may only increase the appetite of the beast they are starving.
However, after reading the link you provided I’m inclined to agree with Mr. Friedman, both because his argument makes sense and because he was several times smarter than me. Still I have an question about his argument that government will be forced to cut spending because of public outcry over a deficit created by tax cuts.
I do not think it completely inappropriate to individualize the argument, though my analogy breaks down since government raises taxes by the indirect consent of the governed whereas my example has the parents taking money without any consent. Though my illustration falls I would argue that groups of people are just as likely to abuse the public trust as individuals.
Indeed, I would argue that aggregate is even more abusive than the sum of its individual parts; the “tragedy of the commons” encourages individuals to maximize personal profit while the negative consequences are spread among the whole. http://www.garretthardinsociety.org/articles/art_tragedy_of_the_commons.html
This principle implies that the preponderance of Americans (the lower and middle classes) would be willing to embrace tax cuts/refunds without much care for the deficit created since they would get all the tax cut while the upper-middle and upper classes receive nothing. The cost of the deficit is spread somewhat more equally among all Americans, though still the heaviest burden of the deficit falls on the very classes who received no benefit because they pay the greatest share of taxes in general. So most Americans receive maximum personal profit at minimal personal expense…a tragedy.
I’m just not yet convinced by Milton’s minor premise in his syllogism.
Major Premise: Cutting taxes will create a deficit.
Minor Premise: A deficit will create public support for reduced government spending.
Conclusion: Public support will translate into reduced government spending.
That’s my sticking point in completely embracing Milton’s “I never met a tax cut I didn’t like.” I’m still open to persuasion.
Actually, I’m not terribly convinced by the Friedman argument either. Nonetheless, as economics reminds us, it’s always a question of the alternatives at hand.
Incidentally, I ran across this this blog post today on bad macroeconomics from a professor at GMU. Some highlights:
“3. “Fiscal policy” is an unfortunate excuse for vote-buying.
Running a government deficit means redistributing wealth away from future taxpayers toward current taxpayers. On net, this makes people feel wealthier. This would be a good thing if the economy were suffering from severe, protracted high unemployment. In practice, however, deficit spending is used as a cynical political tactic. It is a stain on macroeconomics that this crude vote-buying is dignified with the name “fiscal policy.”
Having a large government sector helps to insulate the economy from macroeconomic fluctuations, primarily because government employment is not subject to sudden changes in market demand. But temporary increases in spending or cuts in taxes are exercises in politics, not in good economics.”
“In real economics, government spending that is financed by borrowing is typically not a good thing. We should be rooting against deficit spending.”
Thanks for the link. Part of why I disagree with total supply-sider support for all tax cuts is that it doesn’t make sense for the individual. Perhaps I’m over individualizing again, but it is typically unwise to buy stocks on the margin, so why is the same not true for government (which is what it in effect is doing with unbalanced tax cuts)?
Not that I’m inherently opposed to borrowing in order to invest in general; after all, how do most businesses get started in the first place? I do doubt the government’s ability to target the right “businesses” to invest in. The blog author’s point about our government encouraging spending rather than saving is a good example.
Btw, how do you embed the url link in the paragraph instead of putting the whole link there?
I don’t follow your first paragraph at all, I’m afraid.
1. Why is it usually unwise for an individual to buy stocks on the margin?
2. How are unbalanced tax cuts like the goverment picking stocks?
To embed a link, you just need to know a little HTML code, which is enough to learnat this site.
The command you’re looking for is the “Anchor Tag and the Href Attribute.”
1. All I meant to say was that borrowing money to back your investments can be risky. Irresponsible borrowing on the margin is part of what caused the Crash of 1929. That is also true of today’s subprime market…people borrowing money betting on rapidly rising housing prices, although the government gets the lion’s share of the blame in both instances for meddling with interest rates. The government is betting that rising GDP will compensate for an ever increasing deficit.
2. By which “businesses” the government is investing in I mean which groups of people are being given refunds. The government is not giving money to the upper classes who bear the largest income tax burden and who are more likely to directly invest in wealth creation. Instead the government backed refunds for lower and lower-middle classes, encouraging them to spend rather than save. As your article pointed out, that is the wrong “business” for government to back.
Paul, I agree with you 100%. Your post, that is. I didn’t take the time to read all the banter between you & friends.
America is the last developed nation on earth to realize the common sense of sustainability. Anything else is really just solipsism, but then again, that’s the very sort of luxury that only citizens of a really wealthy culture can afford to indulge in. Too bad their children probably won’t be able to!
That’s me! I’m one of the children! When Social Security runs out of money around 2040 I will be 56, exactly where my Dad is now.
Here is a good Slate.com article on the topic titled “A Secret Tax on Teenagers.”
http://www.slate.com/id/2192361/