How to use your stimulus check to stimulate the US economy

[steveknapp]

A while back, when Gates was still employed by Microsoft, there was an article in one of the business rags which argued that Gates was the lowest paid CEO. After digging thru the entire article I came to agree that they had a good point as at that time Gates entire compensation over a number of years had averaged roughly $500K annually and at that point in time MSFT had been prospering. Gates had already amassed his fortune in stock which was being liquidated (if I remember my numbers correctly) at something like $20M annually. In other words, Bill wasn't really receiving an income for being CEO.

 

I thought I had heard it all...

[Matts_12GS]

$30K/year seems like an awful lot of money... when you compare it to Steve Jobs salary as CEO of Apple anyway. His salary? A whopping $1/year, the same amount he's been drawing since taking the job in 1997.

 

Lee Iacocca did the same thing in the 80's as a show of solidarity with the working stiffs on the line and as a symbol to the knuckleheads in DC that the bailout money wouldn't be going to his fat salary.

 

David, I think that Sean's use of the word manipulation (as validated by later posts) is about as useful to this discourse (as it's really an emotional trigger point) as the word discrimination. When I choose BMW over Kawasaki, I have discriminated in my purchase, but it's not the sexy kind of discrimination that sells books and newspapers.

 

This is informative gang, keep it going!

[Bud]

No - Microsoft, Google, Yahoo, Apple and many of these other companies were NOT created by people who were wealthy. They were created by leaders with vision and willing to work hard.

 

I expressed myself poorly; what I meant to say was that the companies were created because these people were allowed to become wealthy in the process.

 

Corporations don't create new jobs because the CEO is given more money (via tax breaks or bonuses). Instead corp's create jobs when they thrive and grow.

 

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

 

Well consider Sprint/Nextel. They paid the CEO a large sum of money. Stock tanks and he walks away with $1 Million per year in retirement plus insurance and other goodies.

 

Do you think the $30K per year guy could have done worse.

 

And this is just on example of many where the BOD failed in their duties to protect shareholder value when throwing money at CEO's who turn out to be crap. HP ring a bell?

 

For the most part, they are paid so well, without any of the performance based incentives, that it really doesn't matter much if they succeed or not. They leave rich and the stockholder takes it in the rear.

[mrduck]

We need to keep that money here in America .

 

Why not follow Eliot Spitzer's example, and spend it on good 'ol US services?

 

 

 

I'm gonna buy some reefer,down a six pack of Bud Lite, then go down to Wal-mart and check out the hot women there!

 

 

( You guys are makin' my head hurt with this stuff!)

 

 

[MAT2CHI]

I'm going to finally replace my first bike............

 

[velomoto]

Regarding other posts I find it more than a little amusing how people refer to a $600 tax refund as "redistribution of wealth". This might cover the heating bill for a few months, but "redistribution of wealth" it is not!

 

Fine. Just change the term wealth to money, and then perhaps you'll be able discuss it with a bit of substance? You got the point--and then avoided it.

The point is that you chose one of those overused talk-radio catch phrases. Like the use of this phrase on the radio, your use was inaccurate and portrayed a situation that simply isn't so. If it is substance you want, then I would suggest more clarity and accuracy in your selection of words.

 

If your point is that the "stimulus check" is a waste of taxpayer money I would agree whole heartedly. But we're headed into an election year and giving away money seems to be in vogue these days. If, OTOH, your point is that the wealthy somehow need or deserve the money more than the middle class then I would disagree as I neither see the wealthy having a need for the refund nor have I seen evidence that their having additional money would stimulate the economy more than giving the money to the middle class.

[David]

The point is that you chose one of those overused talk-radio catch phrases. Like the use of this phrase on the radio, your use was inaccurate and portrayed a situation that simply isn't so. If it is substance you want, then I would suggest more clarity and accuracy in your selection of words.

 

I don't listen to talk radio (except some sports), so my choice of that word inadvertently aligned with their use (apparently).

 

If your point is that the "stimulus check" is a waste of taxpayer money I would agree whole heartedly.

 

Here are my points, as succinctly as I can make them:

 

1) This disbursement of funds is not sound economic policy and as such it will not stimulate the economy.

 

2) When things are tight in general and you're in debt, you have to be extra careful about spending money and only do it where the risk of not doing so is very dangerous. This does not rise to that level.

 

3) The mechanism for distribution is such that it is really a redistribution, in that there seems to be an inverse connection between who paid it in the first place and who gets the money "back." You've couched your comments in the word "need" which is exactly another phrase for this. It's redistribution.

[Joe Frickin' Friday]

If, OTOH, your point is that the wealthy somehow need or deserve the money more than the middle class then I would disagree as I neither see the wealthy having a need for the refund nor have I seen evidence that their having additional money would stimulate the economy more than giving the money to the middle class.

 

If the intent is simply to stimulate the economy, then why the unequal distribution? Or, to use that other, hated word - why the redistribution? Why not mail everyone a check for $500, regardless of their income? Giving money to the wealthy along with everyone else - a real distribution, not redistribution, of funds - would stimulate the economy just as much as the current approach.

 

If you'd rather use the word "deserve," then it's not that the wealthy "deserve" the money more than anyone else; it's that they deserve it just as much as anyone else.

 

I agree with your implication that it would not be prudent to hire a CEO for a large corporation for $30K per year, but this is not what I was implying or suggesting. Instead my contention is that the wealthy are not necessarily using their money to create jobs.

 

"...not necessarily..." is true. It's not 100%. It's not so much a cause-and-effect thing ("a person is wealthy, which is the reason he creates jobs"), as it is a correlation (a person is wealthy, therefore probably possesses the entrepreneurial spirit and smarts to build/run a successful business).

 

Want a stronger correlation, with more perhaps hope of stimulating the economy? Instead of sprinkling cash from airplanes, or preferentially giving to the rich or poor, how about we put it all together in one big pile and make low-interest loans available for people to start small businesses? This way, you'd be targeting wealth not just to people who might use it to create jobs, but to people who show up with a definite plan and a demonstrated interest in starting a company that will employ themselves (freeing up their current day job for some other fellow) and possibly others.

 

regarding the suggested $30K/yr salary for CEO's, Greg sez:

There are CEOs all over the country making less.

 

Are we talking about Fortune 500 companies (where everyone seems to be upset about multi-million dollar CEO compensation), or smaller Mom/Pop operations? A plumber with limited education and modest business skill may be CEO of his one-man plumbing company, and he'll do fine at it. The needs of such a business are relatively simple: a bit of advertising in the yellow pages, invest in a few tools, a van with a sign on the side of it.

 

But the day-to-day management and long-term strategy requirements are somewhat different for a monster company like Ford, Microsoft; the complexity of an operation that large demands that the company attract the smartest, most educated, most experienced candidates for the job. A few benevolent folks like Iacocca are willing (and able) to do a compentent job essentially for free, but most are not.

 

Bud sez:

Well consider Sprint/Nextel. They paid the CEO a large sum of money. Stock tanks and he walks away with $1 Million per year in retirement plus insurance and other goodies.

 

Do you think the $30K per year guy could have done worse.

 

Yes, there are crapola CEO's out there, just like there are crappy engineers, crappy accountants, crappy managers, and crappy janitors. and there are idiot BOD's out there that agree to reward CEO's for running the company into the ground. Looks like the folks at Sprint/Nextel fit that description.

 

Pointing to a single case is not helpful. Suppose every Fortune 500 company out there hired the best CEO's they could get for only $30K/yr. Do you think that, on average, these companies would continue to be as successful as they are with their current policy of hiring CEO's for 100's of times that amount?

[motoguy128]

 

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

 

That would be an interesting study. Maybe pay him at least $80k so he can afford to at least look the part (well dressed, descent car, country club membership, live in a safe neighboorhood).

 

So this guy would be working for social prestige, personal accomplishment, pride, ego, but not for monetary gain. Somewhat similar to a US President. They may have book deals, but you don't do it for the moeny. I think all US presidents have been well off, prior to becomming president... which hcould be part of the problem.

[steveknapp]

Maybe pay him at least $80k so he can afford to at least look the part (well dressed, descent car, country club membership, live in a safe neighboorhood).

 

80k?

[smiller]

Pointing to a single case is not helpful. Suppose every Fortune 500 company out there hired the best CEO's they could get for only $30K/yr. Do you think that, on average, these companies would continue to be as successful as they are with their current policy of hiring CEO's for 100's of times that amount?

I don't think anyone is suggesting that large-company CEOs should be paid a low salary, rather questioning the much more realistic scenario of whether it is really necessary to pay them (in many cases) hundreds of millions of dollars worth of salary and bonuses to get a good, even excellent level of performance. Just from a perspective of ROI, as a shareholder I would have to ask whether a CEO to whom we pay a $1 million salary would really deliver added value worth $100 million if we were to pay him that much. I think that's a very questionable proposition at best, especially when that CEO makes a large portion of the bonus regardless of company performance ('we just had to promise that, or we couldn't get a good CEO... ')

[Joe Frickin' Friday]

One hopes the company thrives/grows due in part to wise decisions on the part of the well-paid CEO. It would be interesting to see what kind of CEO one could hire for $30K/year, and how the company would fare a few years after hiring a CEO who was willing to take the job for so little.

 

That would be an interesting study. Maybe pay him at least $80k so he can afford to at least look the part (well dressed, descent car, country club membership, live in a safe neighboorhood).

 

I guess if we give the janitor some coveralls for work, then sure, we can give the CEO a new suit every once in a while. Heck, I get new steel-toed boots every year, paid for by my employer. And he can use a company car while on official business. But beyond that, why would we pay him enough to live in a safe neighborhood when the guy who mops the floors isn't paid that much?

 

So this guy would be working for social prestige, personal accomplishment, pride, ego, but not for monetary gain. Somewhat similar to a US President. They may have book deals, but you don't do it for the moeny. I think all US presidents have been well off, prior to becomming president... which hcould be part of the problem.

 

I would point out that the US president makes $400K/year and has his meals, housing, transportation and security taken care of on top of that. Not exactly CEO salary, considering how you end up molding your entire life (and that of your family) in a way that even most CEO's don't. But by your earlier definition, this salary is in fact "excessive."

 

If "CEO for peanuts" were to become a commonplace, unexceptional thing, there wouldn't be book deals, or even significant prestige; it would be as ordinary as being an accountant or assembly line worker, and the only reward you would get out of it (apart from a small stipend to keep the lights on at your house) would be the satisfaction of a job well done. As I've noted, there are in fact a few qualified folks willing to do that; most are not.

 

As it happens, the whole multi-millionaire CEO thing has drifted far from the original issue. Your assertion was that:

 

any salarie over about 200k is a little excessive... especially when you consider that every dollar earned is in a sense taken from someone who works just a hard for a living, but is getting by on <30k/year.

 

and I'm still interested to hear from whom, and in what sense, you think the money is being taken.

 

I'll even allow that there may be some boardroom "old boys network" shenanigans, and CEO compensation doesn't truly reflect the laws of supply and demand. But we can still get way beyond $200K a year, and the same questions apply:

 

-Last year Alex Rodriguez signed a 10-year, $275M contract.

 

-Over his lifetime, Paul McCartney has amassed a fortune of around $1B.

 

Why are these guys' salaries/fortunes "excessive," and from whom have they "taken" their wealth?

[russell_bynum]

Maybe pay him at least $80k so he can afford to at least look the part (well dressed, descent car, country club membership, live in a safe neighboorhood).

 

80k?

 

 

Motoguy lives in Iowa. I would guess there might be a small cost of living difference between Iowa and some other places.

 

80K doesn't go very far in Southern California.

[subvet]

[quote

If your point is that the "stimulus check" is a waste of taxpayer money I would agree whole heartedly. But we're headed into an election year and giving away money seems to be in vogue these days. If, OTOH, your point is that the wealthy somehow need or deserve the money more than the middle class then I would disagree as I neither see the wealthy having a need for the refund nor have I seen evidence that their having additional money would stimulate the economy more than giving the money to the middle class.

 

I agree with your skepticism relative to stimulus $$ contributing to economic recovery. Rich people (however one defines it) are going to spend money whether they get a refund or not.

 

Not to pick on your post, but this whole "need" argument is flawed in the sense that no one here, and not even the govt. should be determining who "needs" the money more. The money you get back is a portion of what you paid. Same holds true for wealthy folks...it's their money. Sure they probably won't miss it as much if they don't get it back, but it's still their money, they earned it.

Look at it like this. Let's say you're married with 1 kid. You live in a 3 bedroom house. You don't "need" the extra space, and there's lots of homeless people out there...howz about we have one move in with you?

 

I have a friend who holds very radical "enlightened" viewpoints about how govt. ought to work, socialized medicine, CEO salaries, etc.... We have had some spirited debates over how things should be, while visiting he and his spouse at their 3500 sq. ft. summer cottage in the NC mountains. We discuss it there because in the heat of the summer, his home on 83 acres down in the lowlands of SC are just too uncomfortable...even with the in-ground pool/spa. When I mentioned that part of his land should be used for low-rent housing, because others "need" it more than him, he thought I'd lost my mind.

I love the guy but he's one of those folks that has fashionable viewpoints.

[steveknapp]

Heck, I get new steel-toed boots every year, paid for by my employer.

 

Which is the TAXPAYER.

 

You're welcome. Enjoy those boots.

[David]

Enjoy those boots.

 

But do NOT use them in your Mojo business on the side.

[Joe Frickin' Friday]

Heck, I get new steel-toed boots every year, paid for by my employer.

 

Which is the TAXPAYER.

 

You're welcome. Enjoy those boots.

 

Thanks.

 

They tend to get ugly pretty quick (hydraulic fluid, oil, fuel, metal chips, etc.), and I guess the powers-that-be have decided they want us to be somewhat presentable. If it's any consolation, in nine years of employment I've only bought four pairs of boots.

 

But do NOT use them in your Mojo business on the side.

 

Well, that would be unethical, wouldn't it.

 

FWIW I don't use my work boots for home stuff, but when I bought my current work-pair, the previous pair - too hideous for office/lab use - got retired to handyman/Mojo duty. I never cleared that with our Designated Ethics Official, so I expect the guards will be escorting me off the premises shortly after they find this post.

[leikam]

why the unequal distribution? Or, to use that other, hated word - why the redistribution? Why not mail everyone a check for $500, regardless of their income?

 

Current US population is about 300M. $500 each would be $150Bn, which happens to be the size of the "stimulus package" Congress passed.

 

My estimate is that 20M households are not receiving checks under the current plan. If there were no income limits, the program would cost an additional ~$7Bn or 5% of the $150Bn being spent.

[motoguy128]

 

Why are these guys' salaries/fortunes "excessive," and from whom have they "taken" their wealth?

 

Their wealth was aquired from everyone that purchases their product. If the overhead of their company was reduced, they could sell their product for less... or instead pay their empoleeys more.

 

But that would violate the rules of supply and demand. You would be artificailly overpaying employees.

 

I didn't mean to imply that nobody deserves or isn't justified in getting a salry over $200k, only that anything more than that is truely excessive from the fact that you can live very comfortably at that amount, or even 3/4 of that amount.

 

Yes 200k is adjusted for costs of living in smaller midwest citiies such as mine. I realize many members live on the west cost... my wife used to live in San Diego... I've heard stories... so I guess just double that amount. 400k then. There you go. Although, home values and the cost of living would drop if salaries were not as high. One begets the other. Jsut like how cheap and readily available credit caused massive home value inflations over the last decade that are finally readjusting themselves bakc ot reality now. We had not inflation and thus no readjustments in my area. It's just very slowly increasd in valve. Our houses are primarily homes, not investments.

[David]

Just a wild guess, here, but would it be safe to assume that wherever you draw this line, it's ABOVE where your income is?

 

That's such a fascinating coincidence. I must really research that further.

 

All this to say this: if you ever get across where that line is drawn and give anything above that line away, get back to me and let's talk.

[Joe Frickin' Friday]

Their wealth was aquired from everyone that purchases their product.

 

Their wealth was freely given to them by everyone who purchased their product.

 

Which is neither here nor there: your original assertion was that the high earner was taking money from the low earner.

 

If the overhead of their company was reduced, they could sell their product for less... or instead pay their empoleeys more.

 

Excepting for the occasional weird CEO case that was discussed earlier, companies are already paying all of their employees the least that they can get away with - and that includes not just the $30K janitors and assembly line workers, it includes the managers and lawyers and such who are earning over $200K. If you try to lower their salaries any further, they'll go somewhere else.

 

But that would violate the rules of supply and demand. You would be artificailly overpaying employees.

 

And you wouldn't be doing it for long before the company, captained by executives who graduated at the bottom of their class (the only ones who are willing to work for a salary that's far below the industry average), runs aground.

 

I didn't mean to imply that nobody deserves or isn't justified in getting a salry over $200k, only that anything more than that is truely excessive from the fact that you can live very comfortably at that amount, or even 3/4 of that amount.

 

"Very comfortably" is as subjective as "excessive." For me "very comfortably" might mean:

 

• flying my wife and me to Japan every year on first-class tickets, instead of once every three years in economy/thrombosis class
  
• driving a nice new Porsche or Mercedes every two or three years, instead of the six-year-old Maxima I plan to keep for another six years
  
• taking that Porsche (on a trailer, behind a suitably large and "very comfortable" tow vehicle) to track school on a regular basis
  
• having two or three relatively new bikes (GS, GT, Goldwing?) in one stall of a three-car garage instead of the single 9-year-old high-mileage RT sitting in our two-car garage while the Maxima gets sunbaked outside
  
• watching a fat nest egg accumulate rapidly so I can continue to live this way after I retire at, say, 50 instead of 70
  
• donating large chunks of cash to scholarships or the Church of Scientology, or some other worthy charity of my choosing

A friend came to town recently on business, and over dinner we had a long conversation on the subject of happiness. In his reading he had found a survey somewhere that asked folks about how much money they figured they'd need to be truly happy; on average, people indicated that they would be happy if they were making twice their current income. Your assertions here dovetail nicely with that study, in that you don't feel there's much comfort to be gained by earning more than twice what you're currently making.

 

I bet there's someone out there who finds your $100K household AGI to be "excessive."

[velomoto]

I bet there's someone out there who finds your $100K household AGI to be "excessive."

Or insufficient!

 

BTW, I once read a similar article to what your friend read. In this survey they asked people over varying "net worth" how much money they would need to be "rich" or "wealthy". The people with $1M figured they needed at least $2M, those with $2M estimated $4M and so on. It was not until they spoke with people with around $8M of net worth did they find people who truly felt they were "wealthy" and could afford what ever they needed. This survey was several years ago so perhaps $10M would be more accurate today, but regardless of where ever the actual line is of perceived wealth it is clearly well beyond the point where the $600 stimulus checks disappear.

[velomoto]

If, OTOH, your point is that the wealthy somehow need or deserve the money more than the middle class then I would disagree as I neither see the wealthy having a need for the refund nor have I seen evidence that their having additional money would stimulate the economy more than giving the money to the middle class.

 

If the intent is simply to stimulate the economy, then why the unequal distribution? Or, to use that other, hated word - why the redistribution? Why not mail everyone a check for $500, regardless of their income? Giving money to the wealthy along with everyone else - a real distribution, not redistribution, of funds - would stimulate the economy just as much as the current approach.

 

If you'd rather use the word "deserve," then it's not that the wealthy "deserve" the money more than anyone else; it's that they deserve it just as much as anyone else.

 

First, just to be clear, I am not an advocate of the stimulus checks. IMO your suggestion of providing stimulus directly to industry would be much more effective and a better long term solution. But the difficulty with providing the stimulus to industry is that it takes time and can quickly become a political football wrapped in pork. Reagan's star wars program is an excellent example of a government (tax payer) financed stimulus plan which works thru industry. A few other possibilities include: highway improvements, mass transit infrastructure (light rail, commuter trains, etc) or airport infrastructure improvements. Unfortunately there is no quick guaranteed method to get corporations to create jobs. If my employer has a good quarter they may take the money to pay down debt (yes most every large corp. caries debt), put the money into their bank account for a rainy day (yes, healthy corp's also keep a fair bit of cash on hand), they could decide to pay the money to share holders to drive up the stock price, or they could use it to expand. There is no guarantee the extra money provided would actually go to growth. A program with inexpensive interest rates could be used to retire bonds with higher interest rates and give us a better balance sheet - but again not necessarily result in an increase in jobs or salary for the many workers.

 

Correct me if I'm wrong, but my understanding is that this stimulus package is a "tax refund". In other words one must pay taxes and not be a dependent in order to qualify. In other words this is just another twist to the tax code in that people in a certain tax bracket get a one time tax reduction. How a tax cut becomes a "redistribution" is beyond me. People are simply getting back a little bit of the money they paid in taxes and not a dime of anyone else's money.

 

Fair? Good question and I won't pretend to have the answer but who ever promised life would be fair?

 

Need? Perhaps a poorly chosen word on my part, those in the lower income brackets tend to save less and spend a higher percentage of their net income. There is a certain amount of money required to maintain a minimal subsistence (food, health care, shelter, clothing, etc.). As one's income drops, a greater percentage of one's income is required to meet these minimal needs. To put it another way, once the minimal subsistence has been met then additional income becomes discretionary. Flat taxes have a greater affect on the finances (life) of people with less income. Examples of flat taxes include: sales tax, social security, gas excise tax. Thus in theory at least, providing a tax refund to those with less discretionary income will result in a change to their spending and they will go out and use the money. So perhaps a better phrase would be that those with less money will have more immediate "uses" for the money than those with a higher income?

 

In any case, for better or worse these checks are a tool intended to stimulate the economy. If the goal is for a quick response to the program then one would target people who are most likely to spend the money - or in other words the people whose finances would change by having the reduced taxes.

 

Again, I'm not an advocate of the program - to the contrary I expect any positive stimulus it could have had will be more than offset by the rising energy prices and related inflation. But I also don't buy the political spin that this is some sort of "wealth redistribution" or example of the "Robin Hoods" in Congress. It's an ill conceived tool to fix an economy which is showing the effects of a changing world and poor leadership.

[DiggerJim]

Correct me if I'm wrong, but my understanding is that this stimulus package is a "tax refund". In other words one must pay taxes and not be a dependent in order to qualify.

Okay. Per the IRS, you need to file but you do not need to have a tax liability (e.g. need to pay taxes). Specifically:

"People with no net income tax liability will usually get a minimum payment of $300 for a single person or $600 for a married couple filing jointly, as long as they have qualifying income of at least $3,000. Extra Money for Qualifying Child: Eligible taxpayers who qualify for a payment may receive an additional $300 for each qualifying child. To qualify a child must be under age 17."

 

Of course, it's all academic if you're a single filer with 75,000+ in income or married filing jointly at 150,000+ - for those folks, the stimulus payment disappears in a hurry (you get nothing if you're single & reporting 81,000 in income or married filing jointly and reporting 162,000).

[NoHeat]

Why not mail everyone a check for $500, regardless of their income? Giving money to the wealthy along with everyone else - a real distribution, not redistribution, of funds - would stimulate the economy just as much as the current approach.

 

If it's the domestic economy that you're talking about, and not the global one, that's not quite right.

 

Economists say that a dollar given to poorer people will multiply faster in the domestic economy than a dollar given to wealthier people. Here's why:

 

If a poor working person gets a small windfall, he'll likely spend it on rent, groceries, electricity, and other stuff that's domestically produced. Money spent that way creates domestic jobs, and it multiplies locally.

 

If the same small windfall finds its way instead to a wealthier person it will do the domestic economy less good, because he's more likely to buy imported goods, if he spends it at all.

 

I'm not advocating any policy here -- just pointing out a mechanical feature of the economy.

[Bud]

How much is enough?

 

I find the key to being happy is to live within my income, which means a 97 RT in the two car garage, rather than be suckered into the consuming theory of happiness.

 

However, I'm glad there are folks buying all the new bikes, boats, cars and trucks as they then become available to guys like me.

 

Not dissing anyone who wants a new anything. Only saying, after basic needs are met, that additional income doesn't insure happiness.

 

Still putting my check in savings.

[velomoto]

How much is enough?

I couldn't agree more - money definitely doesn't buy happiness. There's an old axiom that the two happiest days of a boat owners life are the day he buys the boat and the day he sells it.

 

From what I recall, the survey I alluded to earlier didn't ask if the people were happy but instead was focused on whether or not the people felt financially secure and if they felt they were wealth. The one myth they seemed to be trying to dispel was that being a millionaire meant one was rich.

[Rob_Mayes]

Pay my property taxes.