California starts sending out stimulus checks up to $1,050
cnbc.com
cnbc.com
By my understanding, the case for stimulus checks leading to inflation comes when the stimulus checks are paid for by printing more money (thus increasing the overall money supply).
This program is not that. This program is providing a tax refund from CA's tax surplus. No new money is being created. The only change is who gets to decide how the money is being spent? (e.g., the state? or the people?)
If CA could have seen the future, they could have achieved the same end by lowering taxes this last year for people in an equivalent amount. Would anyone seriously argue that lowering taxes is inflationary? How about the contrapositive? Would anyone seriously argue that we should fight inflation by _raising taxes_?
Californians are on paper earning more than many Americans.
The money people make in the tech industry isn't representative of what a typical person makes.
[1] https://fred.stlouisfed.org/release/tables?eid=259515&rid=24...
Meaningless. What matters is the ability to service that debt, and the value of the debt compared GDP.
Put more simply, would you rather be someone earning $20k/yr with no debt, or someone earning $100k/yr with $20k of debt?.
So idk if that's going to be your best choice of analogy here.
The point is, absolute numbers aren't nearly as relevant as per GDP numbers.
The value of the debt compared to GDP is really just part of being able to service the debt. Being able to service any debt is a good point and a complex factor when you take the long view. But, digging into that is more than hacker news comments.
> Put more simply, would you rather be someone earning $20k/yr with no debt, or someone earning $100k/yr with $20k of debt?.
This is one place people very much disagree. This gets into goals, values, etc. Do you want to make enough money to cover what you need or is your goal to just accumulate more money or stuff? People will look at this different and look at it differently for their government than for themselves.
Exploring the ideas we have on this and the reasons for those ideas is something I think is a good idea. It's a reflection on things we may not realize about ourselves.
It will be quite surprising if 2022 tax revenues are anywhere near 2021.
I don't think its a good source of revenue for many reasons. But until it becomes politically tenable to remove prop 13, I'm not sure if there's a better solution.
However, it's not equivalent to lowering taxes. This is wealth redistribution. The checks are not going out based on your total taxes. It's going out based on perceived needs.
As an example, Oregon also sent out checks this year. It's called the kicker. The state took in more than they could spend in 2021. This year, when I filed taxes, I took my total tax from last year. Then I went through a formula that allocated the portion of the excess to the total I contributed to the revenue of the state. I got that much back. Those who paid no tax or little tax because they have little income get less. Those who are wealthier and have higher incomes got back more. This is exactly equivalent to lowering taxes.
California's program is not. It's wealth redistribution. Which may or may not have an inflationary effect (richer people are more likely to save their refund, whereas poorer people are more likely to spend it, and spending does cause inflation).
That's not quite accurate. They (government) can always find ways to spend the extra money. Oregon passed a ballot measure that constitutionally mandated them to send back any excess above what they budgeted. If they said they need $1.5 billion to run the state for the biennium (made up number) and they collect $2 billion, they have to return $500 million back, and in equal proportions to what the individuals (and corporations) paid. There was a long time where the gov't was overtaxing people (by keeping excess collected) and this was a fair remedy.
Lowering taxes is inflationary. It's one of the reasons the financial markets have reacted so negatively to Britain's fiscal event.
> Would anyone seriously argue that we should fight inflation by _raising taxes_?
There's a difference between recognizing that raising taxes helps fight inflation, and wanting to use it for that. Raising taxes has other effects as well, that might (socially) outweigh the contribution in fighting inflation.
It's not. At least not per se. Lowering taxes for the wealthiest does not impact the basket of goods that generally composes the inflation index.
Markets reacted badly because the British debt and currency, despite covid and brexit, are still risk havens and worth holding for hedging one's positions. were.
The Kwarteng budget upended this picture, the long term solvency and ability to deal with the future of the UK government. Financiers readjusted their models and positions accordingly.
That depends on what they do with it. For example, in my country rent and house prices are a part of the CPI, and if wealthy people decide to invest their tax cut gains in real estate, that will raise those prices.
Of course, you can debate how large the effect of lower taxes/stimulus checks is on the current inflation event. Personally I believe that the current situation is mostly caused by supply-side problems, and that demand-side measures will have only a limited effect.
Did they raise taxes on some group to specifically to take the money out of the economy, to pay for this stimulus? If they didn't, I'm pretty sure this is inflationary.
IIRC, it doesn't matter so much for inflation if the money is "created" or not, it matters if it's circulating in the economy. If CA left its tax surplus sitting in a vault somewhere, that will help reduce inflation.
My understanding is all generally accepted economic theories argue that raising taxes will fight inflation. So: yes. Basically everyone who understands macroeconomics argues that raising taxes will lower inflation.
It's not hard to see why, either: Inflation measures the costs of goods and services, but not of taxes. If you increase taxes, there is less money to buy other goods and services, and the price of them will go down.
Take an extreme example - one could take a portion of their income convert it to bitcoin and then destroy the wallet's private key. If people did this en mass, it would be like burning money to reduce inflation. The only thing stopping people from doing this today is the social cooperation that it would take to accomplish it in spite of the game theoretic solution we find ourselves in today.
I couldn't find a single source backing that assertion. And it doesn't make logical sense either... Tax dollars are pretty much guaranteed to be spent so the idea that "there is less money to buy other goods and services" is wrong. At least, with untaxed dollars, there is a chance that those dollars will be saved.
Government spending happens independent of tax receipts. If you raise taxes, people have less money to spend.
Money supply isn't the only factor in the monetary side of inflation. The velocity of money[1] is also important. If you "printed" a load of new fiat currency but it all stayed in say for example savings accounts, then its pressure on inflation would be greatly diminished. The spending of that money is what bids up prices when more goods and services can't be produced fast enough.
The fear here is that the stimulus checks will increase the velocity of money. Tax dollars sitting in CA's coffers is effectively not part of the money supply. As soon as the check go out, it reenters the money supply and probably gets spent.
Of course, this is California ONLY - whereas the USD is a global reserve currency, so the impact on inflation will be minimal.
The bigger issue I see here is that there's a tax surplus, but the gov't isn't paying the money back to the people who paid taxes - it's just a flat refund.
This is effectively a forced wealth re-distribution, which I think raises ethical questions.
This obviously depends on how the money supply is created and deployed. If you take out loans to hand out stimulus check you get more inflation than you would from a similar dollar value of QE.
USD is a MASSIVE global currency.
Regressive tax structure (which happens when enough wealthy find ways to shelter their tax outlay) is already wealth redistribution but in the other way.
This is an attempt to spur the economy by giving money to those most likely to spend it.
Also it's an election year.
Yes, that's why people are pointing out that this is inflationary. The economy is already running really hot. This is demand side stimulus when consumer demand is already very high relative to the availability of goods and services.
States only have a surplus from the all the free federal money they got from Covid. Either send it back, or use it for infrastructure. Maybe fire prevention and suppression?Maybe build some nuclear power plants again? Homeless programs and shelters? Anything but stimulating consumer demand.
Giving everyone money, regardless of whether it’s a tax refund or printed out of thin air, will have the same effect.
You must be assuming that governments and individuals have the same propensity to spend - which they don't.
Some form of tax rebate is required by law when the state surplus exceeds a certain amount:
https://www.kron4.com/news/california/california-budget-surp...
Buying votes is illegal basically everywhere I think. Paying for prior votes, probably not illegal?
What's the difference? If you're buying someone's vote, you're almost certainly going to pay after they've voted.
There seems to have been a lot of very suspiciously-timed policy announcements like that recently. Of the top of my head: the student loan forgiveness plan, the Federal marijuana possession pardons, and now this.
― Alexander Fraser Tytler
This is effectively a forced wealth re-distribution.
The gov't should spend our tax money on the common good. Not just to literally tax money from my family and turn around and hand it directly to our neighbors.
I'm glad I moved out of California. They don't even hide forced wealth redistributions anymore.
Both would be fairer and more sensible solutions.
I hope people enjoy their stimulus checks while their pensions, savings, retirements and jobs go up in smoke.
Politicians must think their constitutes are financially illiterate. Actually for their base, they probably are.
But! It is definitely better than all the states that used their Covid windfalls for permanent tax cuts. If we end up with a bad recession, one-time checks are going to hurt an awful lot less than lower recurring tax revenue.
Hold on hold on. The discussion was whether these checks will cause inflation. If your answer is that, by being sent to the poor, they will be used for food, fuel and rent... then that is going to cause inflation. If you do something that makes people more able to spend more money on limited goods (all goods are at this level), then you will cause those prices to increase.
As a value neutral take, it simply moves cash into the economy and increases the velocity of money. If the production of goods and services can't keep up, there will be more inflation.
Similarly, tax increases reduce inflation because after paying taxes, people have less money to buy things that are not taxes.
Critically: inflation measures the cost of goods and services, and taxes are not a good or service.
Rents are sky high because the government decided to directly pay people instead of their (I hate the word) landlords.
They aren't even trying to hide behind providing some societal service - they're just seized money from one family, and handing it over to another.