Wednesday, January 23, 2008

Refund Adjustment: A reality check

The news is crammed full of naysayers and political pundits all talking about the strength of the U.S. dollar, or lack there of. Whether you're listening to the radio, television or reading financial news on the internet there's an elaborate picture being painted by everyone with access to a microphone and a throat lozenge. And it ain't too rosy of a picture, either. The economy is essentially a stuck pig. We're furiously bleeding precious life all over our snorting neighbors. (Sorry, Canada and Mexico. We hope you're not squeamish) And all the squealing and thrashing in the whole world isn't going to help.

I'm talking about a recession. Not about the one that a lot of naysayers say that can quite possibly happen in a year or two, but about the one we're in now. We have a serious problem and there is very little we can do about it if we're simply denying the problem has ever existed.

What's interesting is that a significant amount of people who at shouting at the top of their lungs, saying that there isn't that big of a problem are suggesting another round of tax refund adjustments, calling it a "boost to an inherently strong economy" and a "shot in the arm, to prevent a downward trend in the future." Problem is, there isn't a possible downward trend. It's a flaming death spiral and it's happening today. There's a point where sticking to the grind stone just looks foolish.

Too young to remember the last round? Or maybe you weren't qualified to receive one? It's a very simple, easy to understand process after it's all been boiled down. Essentially a tax refund adjustment is the U.S. Treasury cutting you a check for "free money" in the hope that you'll spend it on something to stimulate the economy. Something like a television or a new diesel swilling, CO2 coughing heavy duty truck. Complete with cup holders large enough to accommodate the fattest and thirstiest soda sucking American.

There's a huge housing crisis and while real estate agents and brokers involved in the REO industry are doing pretty swell, the average American Joe is left with a crazy expensive dwelling that he owes more on than what it's worth. Gasoline and heating fuel costs are sky rocketing like nobody's business, which is in turn driving food and consumer goods prices up and up.

Not to mention the fact that a good percentage of energy produced in the United States is fossil fuel based. So energy rates are on the rise, too. Their twisted, obtuse logic is that nobody has money to spend on stuff. Give them money for stuff and the economy will somehow fix itself through sheer will power.

I'll be the first one to admit that I'd love a refund adjustment. I can think of a hundred things to do with it without really getting into the nitty gritty aspects. There are so many diverse ways to deal with a check for $500, $1,000 or more. Sure, there are going to be a lot of people who get their check, cash it in and run to Wal-Mart to buy a nifty new fishin' boat. But there are some underlaying problems that make this plan essentially moot, however great it sounds.

  1. The third world is going to benefit more. The United States doesn't produce a whole lot of consumer goods these days. But we sure as heck buy a lot of them. This leads to a trade deficit with countries like China, Japan, Korea and Mexico. An energized consumer market in the U.S. may help the economy a little, what with retailers charging markup and states imposing sales taxes.

    But the real winners are going to be the major manufacturing nations out there, our biggest trading partners. Because whether or not we like it, the lower middle class folk like to shop at Wal-Mart. And Wal-Mart is China's third largest trading partner.

  2. People are hurting, bad. I'm not sure about you, but if I received a check for a free $500 I'm not about to go out and buy something, much less American made. Why? I'm dirt poor. And because of my previous lack of responsibility I've been thrown through the fire. I know what to do with the money, oh yes. But I'm not going to spend it on anything that's going to help the nation.

    Here's a short list of potential candidates I've drawn up.

    • Rent
    • Groceries
    • Gasoline
    • Kerosene (for furnace fuel)
    • Credit card debt
    • Car loan debt
    • A savings account (in case I lack money for the above mentioned in the future)
    • A certificate of deposit

    None of these will help the U.S. economy. I need rent money far more than a new toaster.

  3. The IRS is busy as it is. Tax season is coming up and the IRS is going to be as busy as ever with tax returns and figuring out how much they owe you or you owe them. Giving them an additional thing to do will not only delay normal tax returns, but amount owed as well, for those folk lucky enough to owe Uncle Sam something.

  4. It's the wrong time of the year. Sure, a fair number of people go out and buy junk in the early spring. But it pales in comparison to the amount people spend in late fall and early winter, due to the encroaching holiday season. Giving people money outside of a spend happy season only leads to them saving or squandering it.
  5. When it's the right time of the year, it'll be too late. The economy is tanking right now. If a supposed solution is delayed until a time where people will likely spend it on consumer goods, the economy will be even worse off. This'll increase the chances that the Average Joe will opt to be responsible and either save it, or pay off some of the accumulating bills.
This isn't by any means a partisan attack. I'm not attacking "spend happy" Democrats or "tax breaks for the rich" Republicans. I'm attacking the policy that many support, regardless of party. Would I be angered if I received a refund adjustment? Absolutely not. Will it be best for the nation if I do get one? Absolutely not.

We'll just have to wait and see what Uncle Sam approves.

3 comments:

remodelingthislife said...

Ed, I always enjoy what you write. Great post!

Joan said...

I agree! You always post such concise, yet easy on the eyes articles.

Pan said...

I guess this one is different than the last. We're supposed to get 800 per person and 400 for each child.

I can honestly say I'd spend maybe 20 bucks on my kids and put the rest into a savings account.

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