What About Federal Gift Cards?

Although I am not an economist or a politician, I think I may have stumbled onto an idea whose time may have come – Federal Gift Cards.

We know that gift cards have become all the rage in the retail business, with consumers spending around $25 billion last year via gift cards. According to the Census Bureau, there were 111 million households in the U.S. in 2007. Assuming that the government and U.S. taxpayers are willing to spend $900 billion to “stimulate” the economy and another $1 trillion to help the banks, the costs of these programs works out to be $17,117.12 per household. Why not give this money directly to the households? Critics of the “tax rebate” plan last year argued that it did not stimulate the economy as expected. I would argue that the $1,000 cash rebate failed because 1) it was too small and 2) it could be used to pay down debt. I think $17,000 in gift cards might do the trick.

Also, gift cards are vastly superior to cash because they could be targeted. For example, $2,500 of the total could be Auto Gift cards – used only on new and used cars. If this money were used only on new cars, that would equate to roughly 16 million vehicles, something that resembles a very good year for the US car industry. General Motors (GM) would have to quickly re-hire those 10,000 people it just laid off.

You could target another $2,500 for new house purchases. Although, this by itself is not enough for a down payment or even closing costs, I would make the cards tradable. If I needed more money for a new car, and you needed more for a new house, we swap – the barter system could save this economy. eBay (EBAY) would no doubt be a beneficiary of the plan, as people scrambled to get the kinds of gift cards they really need. This part of the plan would appeal to free market types.

Other gift cards could be targeted for healthcare expenses (get that elective surgery you’ve been putting off), health or other forms of insurance – perhaps we could make these cards exclusive to American International Group (AIG), college tuition, as well as general retailers. People without jobs could eventually end up with $17,000 in cash to meet living expenses. This, coupled with unemployment insurance, could hold them over for a while.

The plan is progressive in that it would provide greater benefit to single member households, both old and young, who may have lower income than the national averages. The plan would also be voluntary. This would allow those who don’t need the money to give it away (imagine Oprah giving a huge bunch of Federal Gift Cards away to her studio audience). I would avoid the temptation to exclude the wealthy or other groups in this plan – everyone gets them. This would allow members of Congress to give their cards to needy folks back home in their districts, which is probably better than where some of the pork in the current plan will eventually end up.

States would benefit from all of the sales taxes generated by the purchases.

You could also place an expiration date on the cards – say 6 months. This would assure that all this money gets spent right away, and ultimately exactly where we want it to go. I would have big banks such as JP Morgan, (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) administer the issuance of the cards, allowing them to make a small fee for processing.

All in all, I think this plan would appeal to the greatest number of people and would put the money immediately to work in the economy. Within this plan are elements of progressive taxation and income redistribution, which will appeal to a portion the political spectrum; it provides assistance to the needy industries currently being helped by the government – banks, insurance, autos and housing; and it has some elements to appeal to free market types and libertarians (spending the money would be voluntary, cards would be fungible, etc.).

Critics of the plan may argue that so much money spent right away may not be a good thing either. To which I would counter, so why do we need to spend this much money anyway? I have yet to hear a convincing argument that $2 trillion is really the “right” number for this plan.

Disclosure: Long EBAY, C, BAC.

Comments

[sstro:]

Never happen. This government only cares about it's own agenda and giving it's people this money gets in the way of the plan. I don't want to buy a new car or house so my "gift card" is only worth 12k. As far as the banks you want to issue them I refuse to do business directly with any TARP bank. Why would I give anything to those crooks and support their continued rip-off of America.

Feb 12 07:50 AM

[Tim Miles:]

I thought the finacial services sector already received the Federal gift card in the form of the $700 billion TARP program.

Feb 12 07:52 AM

[Paul Price:]

This would be just another chance for fraud and deception a la Hurricane Katrina-type $2000 pre-paid cards.

Theft by politicians and others would make this just another expensive joke on the taxpayers.

Feb 12 08:10 AM

[PotomacView...:]

Although I do not fully agree with the specific idea, the concept is exactly the type of out of the box thinking necessary to help get the economy out of this crisis. Having a "plan" that addresses ALL of the issues is exactly what is missing from the litany of proposals we see from those that pretend to have answers. The idea of the card, regardless of past failures and current welfare for the banking system, can open up another line of thought that eventually could lead us to better solutions than the current partisan political attempts at a solution.

Feb 12 08:37 AM

[kelm:]

We will not get permanently out of this crisis until the insolvent banks are cleaned out and the economy alters its focus from being purely consumer driven to one that is more balanced. Your proposal simply throws more money at the consumer society which has no long term benefit to the economy. That is, once the money is spent it's gone and then what? You have a blip up in employment and economic activity but it is not sustainable. We need to focus on re-balancing so that our exports match our imports more. The stimulus plan should have focused on that as a major component but failed to.

Feb 12 09:37 AM

[a. palmer jr.:]

Great idea: Very similar to what I suggested on SA yesterday. My plan was to give each LEGAL CITIZEN $15000 which could be spent on anything but had to be spent completely in three months (no hoarding). We would probably exclude children too young to shop. I think it would loosen the economy more than what the senate is planning and be a little cheaper.

Feb 12 11:32 PM

[Rob Viglione:]

Kelm has it right: This would only be a temporary blip up, then what? Unfortunately, when you borrow you decrease future earnings. This is only a funny game whereby we yet again try to stave off reduced consumption at the expense of the future.

Why is everyone so eager to spend other peoples' money? Congress and the Fed have no wealth of their own to dispense. This discussion assumes: (1) It is moral to have government confiscate trillions and experiment, and (2) that this experimenting will leave us better off in the end.

We're all acting like kids in a toy store, totally oblivious to the consequences of our actions...


On Feb 12 09:37 AM kelm wrote:

> We will not get permanently out of this crisis until the insolvent
> banks are cleaned out and the economy alters its focus from being
> purely consumer driven to one that is more balanced. Your proposal
> simply throws more money at the consumer society which has no long
> term benefit to the economy. That is, once the money is spent it's
> gone and then what? You have a blip up in employment and economic
> activity but it is not sustainable. We need to focus on re-balancing
> so that our exports match our imports more. The stimulus plan should
> have focused on that as a major component but failed to.

Feb 13 01:50 AM

[SNHUPhD:]

Interesting and original idea. I too am a skeptic of ANYTHING of this scope - handled by the government - to be a success, but if I put on my "glass half-full" hat on... I would love to see this concept be implemented without fear of deception or corruption.

We have the technology out their to effectively control the distribution of $$$ to retailers and I would much rather have an individual blow through the $17,000 on their own than to have that activity managed by the government... oh wait... the government already DOES tell me what to do with over 40% of my income.

My mistake :)

Interesting piece... thanks!
Andy

Aug 26 01:53 PM