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Here’s an idea: Drop bailout plans & suspend 2008 income taxes

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POSTED February 2, 2009 4:05 a.m.
Congress doesn’t trust us – the average American – but they trust their Wall Street and Big Business buddies to jump start the economy. They are the same ones who gladly took part of the $700 billion bailout and then turned around and paid out $18 billion in bonuses as they posted record losses
They believe giving the Average Joe a $500 tax credit will do little, if anything, to generate new jobs. Congress cites economist Milton Friedman’s observation that one-time government stimulus such as the tax rebate last year almost always ends up being used by those who receive it to pay down debt or is saved for a rainy day. Congress concluded that putting money back into the hands of working stiffs would do little to solve the economic calamity we’re experiencing.
Forget the fact that by paying down debt or saving money the Average Joe would be putting more money in circulation by giving banks money owed or else giving them more demand deposits – savings – to again increase a bank’s ability to loan money.
It is obviously much more effective to give banks the money directly so they can make high paid executives who looked the other way when liar loans were being made so they could get big fat performance bonuses to be made whole again in the middle of the worst economic conditions since the Great Depression.
If Congress wants to really get America moving again, there is a very effective way to jump start things. Simply suspend all personal income tax on individuals for 2008.
Think about it. The bailout is now expected to approach $1.2 trillion. The IRS in fiscal year 2006 collected $1.236 trillion from individual income tax. Overall, the IRS collected $2.518 trillion in taxes.
Why not eliminate the middle men and give relief to the people who power the economy – consumers - who are the people with jobs and paying taxes? Individual taxpayers are the ones picking up the tab whether they indirectly pay corporate taxes through products they buy or pay taxes directly to the IRS. For the record, corporations paid $380 billion in taxes in 2006 or just over a quarter of what working stiffs paid.
Since Average Joes are picking up the tab for the bailout, why not put the money back into their hands?
It is much cleaner. Congress doesn’t have to worry about bailing out states. The reason is simple. Anyone who itemizes knows that you can deduct what you pay in federal taxes against your California personal income.  That means more money will go from your pocket intro the state’s pocket if your federal taxes are zero based for 2008.
How effective would such a move be? Well, if Congress assumes Friedman is 100 percent right, then somewhere around a trillion dollars will pay down private debt. True, the debt is being shifted to the federal government of which the Average Joes pick up most of the tab but it does put one hell of a lot of money back into circulation and takes pressure off working stiffs. Yes, it’s a one year window but it is up to people in a precarious situation to use the opportunity to get their financial houses in order. And if they opt to spend a chunk of it, that will generate jobs as spending picks up.
Assuming an average 15 percent tax bracket for workers when it comes to federal income tax, a person grossing $30,000 a year would get $4,500 – minus the increase state income tax cut – back into their hands as a taxpayer/consumer. That’s enough to secure a 3.5 percent down payment on a home costing $120,000 using an FHA loan. That would do a lot to accelerate the absorption of foreclosed homes and get the new home builder sector going again.
If you’re talking the median household income in Manteca, which is $62,000, would put upwards of $9,000 into the pockets of someone earning that much. That’s a solid 40 to 50 percent down payment on a new car.
Or they could go on a buying binge for their homes or family to increase sales in stores which in turns generates more jobs needed to replace that inventory as well as increases sales tax. That sends more money into municipal coffers to pay for services under duress from dropping revenues. It also sends more money via sales tax to the state to help schools and the rest of California’s budget ills.
Odds are many might be moved to give some of it to struggling non-profits they support. That would ease the pain of another segment of society that won’t be getting a federal bailout.
So what should Congress do? Help their pals they rub shoulders with bailout money so they can dole it out in fat bonuses or give working Americans a one year free pass on federal income taxes?
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