Wednesday, April 2, 2008

April Fools: The Government Used Your Tax Rebate to Buy You a Gift.

I usually detest April Fools jokes. However, marketplace had a great one yesterday. (link) They had a fake story where the IRS instead of sending a check to an Arizona couple behind on their mortgage, they sent them an air conditioner. The story goes on to say how the IRS will look into charactestics based on where people live to find out what should be sent to them. As Robert Reich, former Labor Secretary and my college graduation speaker, points out in the piece:

Also, the government is not terribly good at knowing what individual people want, even in the same neighborhood. I mean, my neighbor might want, say, Viagra, but if the government ships a toaster oven to my neighbor and ships Viagra to me -- and by the say, I don't use Viagra -- that's not going to be terribly efficient; I would much rather get the toaster oven. Now, I suppose my neighbor and I could barter, but then I would have to know exactly what the government shipped my neighbors and it would be difficult for all of us to get together and know that fact.

The humorous piece make a couple of good economic points.

1.People will always prefer a cash transfer of equal value to a transfer of an item if with that cash they could buy that item or something else they prefer more they must be better off with the cash or at least just as well off.

2.The point of the cash payments is a short term increase in consumption, but if people save it will not stimulate the economy.

One final thought in some cases giving people something instead of money might actually be better than cash if there are benefits to people besides the recipients. An example of this might be vaccines or school supplies. As vaccines prevent the spread of disease, while school supplies might promote education and therefore long term economic growth.

In case Uncle Sam wants to know what transfer I want, let me go on record as saying baseball tickets or good local DC restaurant gift certificates would be more fun than stashing the rebate check in the housing fund.

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Jennie said...

I loved that piece yesterday-- I totally bought it too, until at the end Kai Rhysdall (sp?) told us all to check the calendar...

Seth Gitter said...

You aren't the only one. Yesterday was one of my highest hit counts all from people googling "NPR April Fools tax rebate"