(ThyBlackMan.com) It is important, how President Biden and his economic team define stimulus. It is a misnomer to call the entire economic relief package, such as the Cares Act, “stimulus legislation only,” because part of the funding within it was clearly used for relief, such as unemployment benefits, and aid for Americans in need of food. It is estimated, though, 160 million, stimulus checks were issued by the IRS, since the passage of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, in March of 2020. An estimated $290 billion has been given directly to consumers. Even so, the PORTION of the Cares Act that dealt with direct payments to consumers for some reason, was not viewed as a Direct Consumer Tax Cut.
Nevertheless, that is what it was, the largest Direct Consumer Tax Cut in history. A tax cut can take the form of “a reduction of taxes flowing to the U.S. Treasury,” such as the Trump Tax Cuts and Jobs Act of 2017 or a tax cut can take the form of “money paid from the U.S. Treasury” to consumers to “stimulate” economic growth and jobs, as the Direct Consumer Tax Cut within the Cares Act did. It is safe to say giving tax money from the Treasury directly to consumers, that consumers do not have to pay back, amounts to a Consumer Tax Cut! If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
It is questionable, whether Mr. Biden, the Democratic Party, and his economic team view direct payments to consumers as a Direct Consumer Tax Cut. Obviously, if they admitted it, they would have to admit to how remarkably successful the CONSUMER Tax Cut has been at creating jobs. This tax cut confirms, what consumption data states, that low- and middle-income Americans are more likely than higher earners to spend benefits from the government immediately and stimulate economic growth, creating millions of jobs. The data is right there before them.
Consumer spending, as a result of the Cares Act Tax Cut, was a major contributor in the rate of unemployment dropping from 14.7% in May 2020 to 6.7% in November. As the economy reopened in May with 2.5 million jobs, strong consumer spending enhanced the recovery. However, consumer spending fell in November, which was a sign that the economic impact of the Cares Act Consumer Tax Cut was dwindling. It is a reminder that our economy is 70-percent powered by consumer spending. Consumer spending is what makes our free-market economy work. The truth is, there is no greater economic engine in the world, than U.S. consumer spending. It is consumer spending that has made the United States the #1 and largest economy in the world.
Seeing that consumer spending was on the ropes and wanting to help their candidates win the Senate through the Georgia elections, Republicans agreed to a REDUCED Consumer Tax Cut in the current Coronavirus “RELIEF” Bill. They reduced the tax cut to $600 from $1200 in the Cares Act. The result will be, that the Republican candidates can take or claim credit for acting on the economy, while Republican Senate Majority Leader McConnell ties down the Biden administration with a slow growth economy because of the reduced tax cut. This, as Biden enters office, and as the nation approaches the next mid-term elections. This obviously benefits Republicans, especially if they win the Senate.
Democrats will be tagged as the party of slow growth, as Republicans block and obstruct vital legislation. No one will remember it was Trump and Republicans, who initially engineered this slow growth economy. The $1.5 trillion Trump Tax Cuts and Jobs Act of 2017 failed to grow our economy “prior to the pandemic,” as GDP declined to 2.3 percent in 2019, compared with 2.9 percent GDP in 2018. The Federal Reserve as a result, projected GDP of 2.00 percent for 2020. Of course, the pandemic struck, obscuring the Republican Party’s economic failure, as the Trump Tax Cut was passed on a party line vote, with no Democratic Party support.
The Federal Reserve (Fed) has studied the character and nature of this Economic Downturn, enabling us to understand its cause. Just as the medical experts are to COVID-19, the Federal Reserve is to the economy. They give us factually based information on our sick economy. The study states, according to a recent Bloomberg News article, “…. A new Federal Reserve study squarely pins the blame (cause of this Economic Downturn), on a collapse in demand, as consumers sheltered in home to avoid infection.” The exact wording, in the Fed’s conclusion in that study, dated August 24, 2020, states “…. Current data show that the recent drop in core PCE (personal consumption expenditures)” … is mainly attributable to large declines in consumer demand (or spending) for goods and services stemming from COVID-19.”
It is apparent the Republican opposition in the Senate has committed itself to a slow growth economy, to stifle any attempt by the Biden administration, to successfully grow the economy and jobs before the mid-term elections. It is worth pointing out again, the method they are using and how they are doing it. They are doing it, through cutting the Cares Act Consumer Tax Cut, in half. They know, whether Democrats realize it or not, that Democrats need a healthy growing economy to achieve any part of their legislative agenda.
Mr. Trump, who lost the presidential election to Mr. Biden is expected to be a factor in Republican, and national politics for the next four years, decided to let his Republican colleagues know, a slow growth economy, at least over the next several months, was not in his best interest, upped the individual amount of consumer spending (stimulus) from $600 to $2,000, and $4,000 for a couple, for an estimated 160 million qualified consumers.
So, you see how we define what is called stimulus, is important. Words matter. A Consumer (Demand Side) Tax Cut, or consumer spending, is stimulus. What I mean by saying that; it does not matter what, Mr. Biden, his economic advisers, the Democratic or the Republican Party, Mr. Trump, and his people call it, the result is, the act of “Spending by Consumers,” is clearly what drives the United States economy and creates jobs. Other financial initiatives such as public spending, 3rd Party Programs and tax credits are complements to consumer spending, but consumer spending represents 70% of our economic activity.
Understanding, increasing consumer spending is what it is going to take to pull our economy out of this Economic Downturn, by Republicans and some Democrats, it behooves Mr. Biden and his economic team to consider a long-term data driven Demand Side (Consumer Spending) Tax Cut Plan, instead of the short-term plans now being considered as a solution to this Economic Downturn. Any short-term plan should be a bridge to a long-term permanent solution. Lost Demand, due to the virus can be restored, in the long-term, with a 10%, $25,000 Demand Side Tax Cut.
Baby Boomers, as a homogeneous group, who are retiring at a rate of 10,000 a day, who will be the target of such a tax cut, are responsible for close to 40% of all consumer spending (consumption). Baby Boomers also, include rural whites and an equitable number of minorities. A 10%, $25,000 Consumer Tax Cut (The Consumer Tax Cut Explained – Jobs and Their Creation (thefixthistime.com), will drop $254 to $300 million a day or more into our economy, for businesses, both large and small to compete for, over the next 10 years, which would be the duration of the tax cut. This will bring back, by the millions, the jobs lost in the pandemic. The cost of the tax cut would be $1.5 trillion or less, which is comparable to the cost of the Trump Tax Cut, which was legislated to last for the same period, 10 years. This pragmatic solution to grow the economy is just what our country needs. But, having the courage to embrace new ideas, which make common sense and may take political muscle to achieve, is another matter.
Staff Writer; James Davis
Mr. Davis is a leading expert and consultant in Financial Analysis and Social Dynamics. He is a graduate of Florida A. and M. University (FAMU), a former stockbroker, and a human rights activist who resides in Sanford, Florida. He was awarded the prestigious Governor Haydon Burns Scholarship to attend FAMU and while at FAMU was awarded the first Martin Luther King Scholarship. He is the author of three books, among them is “The Fix This Time,” Boost Your Retirement Income! Simultaneously Create Jobs and Spur Economic Growth (https://www.amazon.com/dp/B00MI3PD2M).
Mr. Davis can be reached through his blog @ https://thefixthistime.com.