Can stimulus checks avert a recession?

Congress and President Bush have signed onto a plan to send millions of checks out to American taxpayers.

These checks are part of a $168-billion plan to stimulate the economy to avoid a recession. Individuals will receive between $300 and $600 and couples will receive between $600 and $1,200.

In addition, business will get additional write-offs on their taxes.

The idea is that people will use this money to buy things they wouldn’t otherwise buy, like big-screen TVs or iPods or F-350 pickup trucks. Then the companies that make these items will be less likely to lay-off their workers and the economy will be rescued.

But will the Economic Stimulus Package perform as advertised?

Robert Reich doesn’t think so. He was the Secretary of Labor under President Bill Clinton — back in the days when intelligent people who cared about working people were considered for such a job. Reich now teaches public policy at UC Berkeley.

In a column called “Stimulus Stimulus,” Reich predicts that the government plan will be “too little, too late.” He points out that “Homes are the biggest assets Americans own – their golden gooses for retirement and piggy banks for home equity loans and refinancing. So as home prices fall, people not only feel poorer but are poorer. That means they can’t spend nearly as much, even if the government drops an extra

$300-600 in their laps.”

Analysts say falling home values and the “mortgage meltdown” will combine to hit the economy with $360 billion in losses — more than double the size of the stimulus package. Add to that the costs of record-high gasoline prices and we have a population of frightened Americans who are suddenly cautious in their spending habits.

     In these circumstances, folks aren’t going to spend their stimulus checks on new surfaces for their kitchen cabinets or retiling their bathroom floors. They’ll use the money to pay the rent, lower their credit card balances or put food on the table for their families. Besides, when was the last time anyone saw a big-screen TV for $600?

Reich agrees that a fiscal stimulus is necessary if the economy is to avoid recession — though we may be in a recession already. But what sort of stimulus would do the trick?

“Since 80 percent of Americans pay more in payroll taxes than they do in income taxes, and because middle- and lower-income people are far more likely to spend whatever tax relief they get than higher-income people, the best stimulus would offset the payroll tax,” he says. “And the easiest way to do this is through a refundable tax credit, effective as soon as possible.”

This approach, which is favored by Sen. Barack Obama, would focus on the needs of working people, letting them keep more of their earnings and shifting more of the tax burden onto people who are better able to carry it. Obama’s plan also would provide extra Social Security payments to seniors.

Our nation’s economy has suffered from seven years of governmental bias toward rich people and corporations. Failure to oversee and regulate the mortgage industry has also contributed to the current crisis.

The current administration in Washington doesn’t have a clue about the needs and desires of average Americans. Fixing the damage caused by its mistakes will take more than a single check from the government. It will require a fundamental shift in priorities.

Ultimately, the solution lies in giving real economic power back to working Americans. Congress needs to pass — and our next president must sign — the Employee Free Choice Act, which will enable more Americans to join labor unions and claim their rightful share of our nation’s economic bounty.