Talk Of Another Stimulus Package

Posted In: Budget Deficit, Consumers, Economy, Politicians, Stimulus Package, Taxes, U.S. Government, U.S. Treasury Dept.

Although only one-half of the tax “rebate” checks have been paid out, there is already talk of another “stimulus” package being required to jump-start the U.S. economy. Reuters’ Emily Kaiser wrote this afternoon:

Even as U.S. consumers raced to spend their tax rebate checks, economists and analysts at a Reuters summit this week said the effect on the economy may be so short-lived that another cash infusion will be needed.

Kaiser talked to economists Martin Feldstein and Roger Kubarych, and wrote:

Martin Feldstein, a Harvard University economics professor and head of the influential National Bureau of Economic Research in Cambridge, Massachusetts, said textbook economic theory holds that one-time tax rebates don’t work, but recent experience shows otherwise.

“For a lot of people, seeing the cash sends them right out to the store to spend it,” he said. “If the economy is weak a year from now, and this (first stimulus) seems to have worked, I think they ought to do it again.”

Kaiser also spoke to Roger Kubarych, the chief U.S. economist at The Unicredit Group, who said:

We’ve got quite a lot of fiscal kick for the second half but it has got a lot of work to do. I think that it allows maybe 2 percent, 2.5, 3 percent growth in the third quarter but by the end of the year it will be slack. And the next president will reconsider and maybe do another rebate program next year. The economy is not really strong enough without some fiscal kick, and the Fed is pretty much spent.

Despite such benefits, Kaiser warned, “Nothing is free, and the current package, worth $168 billion over two years, will add to an already daunting federal deficit.” In fact, the U.S. Treasury Department reported yesterday that the May deficit was more than double what it was in May 2007. According to the Associated Press on Wednesday, $48 billion in “stimulus” payments contributed to last month’s $165.9 billion deficit, the highest imbalance ever for May.