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Andrew Tobias
Andrew Tobias

Money and Other Subjects

Where Does the Money GO?

February 14, 2002February 21, 2017

Tony Spina: ‘Three months ago I sent an e-mail to you saying that I didn’t see it as important who the Government rebates tax money to because it all ends up in the “economy” somewhere. Your reply then, and your writings since then, have been consistent with a position that it does matter who touches the money first. Someday when you are stuck for something to write about, a description would be interesting of how it is better for the economy when we give back some of Sam’s & Sally’s Sub Shop’s tax money to them so they can buy an IBM PC for their business, instead of sending back some of IBM’s tax money to IBM so their employees can continue to buy lunches at Sam’s & Sally’s.’

☞ Is that what IBM would do with the $1.4 billion the Republicans proposed to send it back in retroactive tax-rebates? Give it to their employees to buy lunch? Something tells me: no . . . and that IBM employees can already afford lunch.

But you raise an interesting question: What happens if IBM gets the $1.4 billion retroactive tax-rebate instead of, say, using the same money to give $1,000 to each of 1.4 million small businesses like Sam & Sally’s that could each buy a PC with the money?

Without the rebate, Sam & Sally might not be able to get that computer and improve the productivity of their business. And without their being able to buy that computer, IBM would have one fewer PC to make and sell. Multiply that 1.4 million times.

But at least IBM would get the $1.4 billion, even if Sam and Sally had to do without, so what would they do with it? Would IBM recall laid-off workers? No. (They didn’t lay them off for lack of cash; they have tons of cash. They laid them off for lack of orders.) Would IBM decide to buy a new fleet of cars for its sales force and stimulate the economy that way? (No, if IBM thought it needed $1.4 billion of new cars, it has plenty of money to buy them and would have done so already.) So where would the money go? That’s a harder question . . . maybe into Treasury securities bought from some Japanese bank that’s selling them – who knows?

In one sense, it may be true that pumping more money into the economy will help the economy no matter who gets to own that money . . . but I think it does matter who touches it first. And I think it definitely matters who ‘owns’ the money.

Look at it this way:

What if the entire tax break went just to Bill Gates? He doesn’t need it, but he wouldn’t burn it, either. He’d buy stocks and bonds or small countries with it, and then the sellers would have that money. So the money wouldn’t disappear . . . but is this a good idea? And the best way to stimulate the economy?

When reduced to this absurd extreme, the answer is obvious. When, instead, you imagine spreading the bulk of the tax break around to, say, 25 wealthy families and corporations instead of just one, it’s a little less obvious but, I think, still pretty clear. It becomes less clear – but, I would argue, still no mystery – when you spread the bulk of the tax break around not just to Bill Gates, or even to 25 wealthy families and corporations, but to 100 large corporations, say, and to the top 1% of individual taxpayers. Which is what the Republicans have done.

To me, this is just bad policy: unfair and unlikely to stimulate the economy nearly as well as a different approach would.

But if the 1.4 million Sam & Sally Sub Shops of the world say ‘No! Don’t give us $1,000 each, give IBM that $1.4 billion instead (even though they don’t need it)’ – so be it. If the elderly around the country say, ‘No! Don’t give us a prescription drug benefit, use that money to cut the estate tax on $1 billion estates from the current 55% to 0%’ – so be it. Who am I to argue with the popular will?

I don’t think this is how most people would feel, if presented the choices clearly, but you never know.

PS – Happy Valentine’s Day!

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