Keep your $800 billion, Uncle Sam

Normally I’m not one to turn down free money, but just this once I’d like to tell Uncle Sam to keep his greenbacks.

The $800 billion economic stimulus package currently facing Congress is a recipe for disaster. The new plan would give most working Americans $500 over two years. Free money like that can be hard to resist, but here’s why we should.

Last year an stimulus plan gave $300 or more to most Americans filing a tax return. This plan was supposed to boost our struggling economy. But the economy crashed anyway. The stimulus package didn’t cause the crash, but it sure didn’t prevent it.

Lump sum handouts are a bad idea. Poor economic climates tend to spook Americans into holding onto their money, which leads to fewer major purchases (home repairs, cars, ridiculously large flat screen TVs), fewer dinners out and fewer vacations. When friends and neighbors start losing their jobs or homes, we all tend to spend less money…because we could be next. We frantically try to save our pennies for the rainy day that could strike at any moment.

While it’s easy to think that handing each of us a wad of cash and telling us to go shopping will remedy these fears, it’s not that simple. For starters, the amount would need to be much larger to really encourage us to spent it, say $5,000 instead of $500. A measly $500 is hardly enough for a down payment on a car, never mind a down payment on a new house; and you can barely buy a new refrigerator, forget about a new roof.

Anyone who’s even a little finance-savvy knows the best way to handle a windfall is to put half the money directly into savings and use the rest to splurge on a big purchase. So at best we’ll see 50 percent of the stimulus package flowing back into the market; Americans will hoard the other half. The money won’t be spent in a way that encourages growth either. We’ll stock up on groceries at Cosco or Wal-Mart rather than supporting local restaurants.

The government should keep the cash and instead offer incentives (see: tax deductions) on certain purchases, such as cars or home improvements.

We could take it even further. Allow anyone who buys a new car this year to deduct 50 percent of the cost on their tax returns. Make it 100 percent of the cost for hybrid or other “green” vehicles. Encourage energy efficient home improvements with similar incentives (like deducting the cost of making a heating system more “green” or even the cost of installing solar panels or whatever the latest energy-saving trend is these days). Congress can promote economic growth while reducing America’s carbon footprint, and democrats will be too busy loving the energy savings to realize that they voted for a tax cut.

In addition to the individual rebates, the stimulus plan offers what are sure to be equally ineffective rebates to businesses and hands over scores of cash to state governments in a “Medicare matching rate” plan. The faults in these are easier to see so I won’t go into detail here.

Handing taxpayers checks with a note saying “please spend this on xyz” never pans out. This case is no different. The number of taxpayers who will actually use the funds in a way the government would like pales in comparison to the number who will stuff it under their mattresses.