Expert Helps Makes Sense of Stimulus Package

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Congress unveiled a bipartisan economic stimulus package last week. The legislation is designed to help boost a sagging economy and give taxpayers some form of relief from the threat of recession. Financial expert Alvin Hall breaks down the package and explains what it means to everyday Americans.

MICHEL MARTIN, host:

I'm Michel Martin, and this is TELL ME MORE from NPR News.

Coming up, an Iraqi doctor takes us inside an emergency room in Baghdad. It might be one of the most dangerous places in one of the most dangerous cities in the world and a new documentary tells us why.

But first, we want to talk more about the plans to stimulate the economy with our personal finance guru Alvin Hall. As you must know by now, the White House and House leadership announced a bipartisan plan to boost the economy through tax cuts to businesses and rebates to taxpayers.

Alvin Hall joins us from our London bureau to break it down for us and explain what it means for all of us.

Alvin, welcome. Thanks for joining us.

Mr. ALVIN HALL (Financial Expert): Thank you. I'm glad to be here today.

MARTIN: Alvin, what's your opinion of the basic concepts of the bipartisan stimulus plan or just to, you know, get some cash into people's pockets?

Mr. HALL: What it misses is the fact that many people who are in these difficult financial situations have more mortgage payments and other expenses that are way in excess of the rebate. So it strikes me that this is giving the people something.

I have to admit, that the song that repeatedly comes to mind is that Billie Holiday song with, you know, about crumbs from the table. That's all I could think about. I didn't think the amount of money is significant enough to cure most people's problem or to stimulate the economy.

MARTIN: The Senate is not happy, apparently, now. This deal was negotiated with the House leadership. And I think the idea was that they would then take it to the Senate and the Senate would discuss it. But the Senate is not pleased. And the Senate Democrats are going to come up with their own measure. They're going to lift the income limit at the top. And then, the other thing they want to add is an extension of unemployment benefits for 13 weeks.

Now, of course, on the House side, they're upset because they're saying that, you know, the wealthiest people don't need any more money. But on the other side, they're saying that, you know, adding unemployment benefits would be an immediate boost for people who really do need it. And they certainly would spend it.

So what do you think about that?

Mr. HALL: I think that's really an important thing, having been unemployed twice in my lifetime. An extra 13 weeks when you're really desperate for the job is really important, and it does give you a sense of greater security. People have lost their homes. They see the job market shrinking. They see it taking longer and longer to get a job. That's not going to encourage them no matter how much money it put in their pocket to go and then want to buy a flat screen television. He needs to focus on building confidence in the economy.

MARTIN: How can we do that?

Mr. HALL: Well, for one thing, I think you first need to recognize that we all read newspapers and we are aware of the tax breaks that have gone to the very wealthy, especially the hedge fund managers, who put a lot of their assets offshore.

So here you have, you know, the people from BlackRock, the people from all of these hedge firms earning tens of millions of dollars and paying no taxes. What's fair about this? So…

MARTIN: Do you really think it's realistic to pass that kind of change in the tax code in an election year when, frankly, the folks or these hedge fund managers are some of the big contributors to political campaigns?

Mr. HALL: If I were the revolutionary, it might happen. But no, it's not going to happen at all. But it's one of those things that Bush has to look at. Some of those tax loopholes at the very top that's creating this huge disparity between the rich and the average person in the street. They need to be closed to make people feel confident that they are getting as equal or as fair treatment as the very rich are.

MARTIN: But does that address the immediate problem? Because the other issue I want to talk to you about is…

Mr. HALL: Yeah.

MARTIN: …it seems to me that the logic of this is to get some money into people's hands right away. I mean, the goal of the White House…

Mr. HALL: Yes.

MARTIN: …and the congressional leaders is to have these checks out by spring. But I don't understand how this deals with two of the three pillars of the recession or the potential recession or the slowdown is high energy prices and the foreclosure crisis. So how does that address that?

Mr. HALL: They don't deal with them because if you look at the average person's mortgage payment, this money doesn't even come close to half of a mortgage payment.

So how do they expect these people to continue when they're not giving them any incentives or giving them any money that's going to have any real effect?

A friend of mine joked - and this was awfully, awfully cynical. He said, you know, Alvin, these are just flat-screen television money. He said that's what people were going to do with this. This is not going to stimulate the economy at all.

MARTIN: Well, I'm sorry, but if everybody did go out and by a flat-screen television that would be generate some economic activity, wouldn't it?

Mr. HALL: There'd be some activity but not a significant amount.

MARTIN: Okay. Well, let's say this package does go forward.

Mr. HALL: Yes.

MARTIN: What do you recommend that people do with this money if it should actually happen?

Mr. HALL: Michel, that's a very good question, and it really tears me apart to have to say this, but I think people need to be realistic. The government may want you to spend. But look at your own situation and see where you can use that money most effectively. If it's paying down a credit card, if it's trying to get your mortgage back on track, if it's doing something that's going to give you a greater sense of security, do that. But don't necessarily go out and spend the money.

MARTIN: Most people are carrying some debt, though.

Mr. HALL: Yes.

MARTIN: It's a choice between accumulating cash and paying down debt. What do you recommend?

Mr. HALL: Pay down the debt, especially the high-interest rate. Pay it down so it's not costing you money.

MARTIN: And on the whole question about accumulating cash versus paying down debt, is that different depending on who you are and how old you are?

Mr. HALL: For a young person with student loans, I will not pay down my student loans. I'd stay on that schedule. It's consumer debt. If you have a huge credit card debt or store card debt, that's really the thing that drags you down the most, especially, with some of this debt hovering around 20, 25 percent interest rate. You don't need to carry that kind of debt. Pay off the debt as much as you can. Or if you can't afford to pay it off, call up your creditors and move it to a lower interest credit card. That's what you should do.

You should not go forward with all of this debt during a time when we may be entering an economic slowdown. I won't use the R-word. But I will say it's very clear that an economic slowdown is somewhere in our future.

MARTIN: All right.

Mr. HALL: Okay.

MARTIN: Alvin Hall is our financial expert. He joined us from our bureau in London.

Alvin, thank you so much.

Mr. HALL: Thank you.

MARTIN: And travel safely.

Mr. HALL: Thank you.

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