Tuesday, September 30, 2008

Taxpayer Bailout

I am amused at how the word “taxpayer” gets attached to the word “bailout” when referring to the Paulson Plan and other congressional proposals to loosen the credit markets. Add another word, “crisis”, and we have created a narrative that makes the solution for relieving the tight credit markets unacceptable to the general public.

I don’t recall the 200 billion dollars the Federal government pledged to rebuild New Orleans after Hurricane Katrina as a “taxpayer bailout” of greedy home owners who chose to live in a flood zone. I don’t recall the words “taxpayer bailout” ever being used in regards to the way FEMA spends money and guarantees loans after any natural disaster. Social Security, for those who fail to plan for retirement, Amtrak and farm subsidies, and most every other extra Constitutional program of the Federal government are never referred to as “taxpayer bailouts”. Can you even imagine National health care being referred to as a “taxpayer bailout” for those who don’t want to pay for health care?

Only about 60% of American adults pay Federal Income taxes in any given year and the top 1% of taxpayers pay about 33% of the total. So if the taxpayers were to pay for the Paulson Plan, the rich would be bailing out the rich. However, since there isn’t a relationship between federal taxes and federal spending, the idea that taxpayers are really paying for anything specific nowadays is laughable. The verbiage “taxpayer bailout” is a hyper-narrative to create controversy, and nothing more.

I can live with worthless investments and meaningless money. I will still get up and go to work in the morning and hug my wife and kids when I get home from work at night. What really bothers me though is living in a society where words have become meaningless.


Rick and Gary said...

Hat David -- You're exactly right, especially since no actual taxes have been proposed to pay for it. In fact, some GOPers have called for a capital gains tax cut as a condition for supporting the bailout.

But all this spending on borrowed money has created a hidden tax in that people pay more for all the stuff imported stuff at Wal-Mart as well as gas. And, since we've now exhausted our borrowing, the money printed for the bailout will mean further inflation from a devalued dollar.

Ironically, the common man should insist on a REAL taxpayer bailout since, as you point, most income taxes are paid by the rich. But the bailout will actually be paid with higher prices for gas, milk, etc., etc.

David M. Smith said...

Hi Rick,

The Classical reason for balancing the Federal budget is to keep the private sector from having to compete with government for credit which in theory raises interest rates and creates your hidden tax.

I don’t think this is the case now, though. Interest rates are very low. Last week, short term government bonds were selling at negative interest rates.

Inflation may be the only antidote to reverse declining home values, but it’s not clear to me how America can get inflation without easy credit unless the Federal government just starts printing money which could be just as bad for the American and even world economy.

There is going to be pain for most Americans regardless of what our Federal government does. I just hope the people who have been living within their means do not have to bear equal pain as those who have been living excessively for so long.

The Count said...

Your words have meaning
So few yet so powerful
An inspiration

David M. Smith said...

Hi Count,

You made me smile. : - )

I have often been called curt. I like your description better.

SLW said...

A remarkably fresh take on things. Glad I stopped in to read.

David M. Smith said...


Nice to have you stop by. I've been mostly dormant lately, which has shrunk my community, so it is nice to hear your kind words.