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Congressional Research Service: Tax cuts less stimulative than spending

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Remember the Bush tax cut plan?

How’s that working out for us?

In case the last eight years haven’t left you skeptical about the effectiveness of  tax cutting as a business stimulus, the non-partisan Congressional Research Service provided its bosses (the Congress) with these sentences in its report of January 23 entitled Economic Stimulus: Issues and Policies (pdf):

clipped from www.motherjones.com

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“Economists generally agree that spending proposals are somewhat more stimulative than tax cuts since part of a tax cut may be saved by the recipients […] The primary way to achieve the most bang for the buck is by choosing policies that result in spending, not saving. Direct government spending on goods and services would therefore lead to the most bang for the buck since none of it would be saved.” […]

“The effectiveness of tax cuts also depends on their nature… tax cuts received by lower income individuals are more likely to be spent.” […]

Most evidence does not suggest that business tax cuts would provide significant short-term stimulus […]

This lack of effectiveness may occur because […] stimulus is generally provided during economic slowdowns when excess capacity may already exist. […]

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Hmm, interesting thought!

It’s a recession. Manufacturers aren’t selling much. Plants are running at partial-capacity. Employees are laid-off. Are they going to want a tax cut to help them expand capacity, when they can’t fully use what they have?

I’m no economist, but it sure seems like the tax cut approach is more doctrinaire than effective.


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Written by Monte

February 10, 2009 at 9:19 pm

Posted in Politics

NYT: ‘Taking on critics, Obama sets aside talk of unity’

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I never thought I’d feel good about “set[ting] aside talk of unity,” but this is hopeful.

clipped from www.nytimes.com

photo by Ruth Fremson/The New York Times

Three weeks into his tenure, Mr. Obama acknowledged that his effort to change the political climate in Washington had yielded little. He made clear that he had all but given up hope of securing a bipartisan consensus behind his $800 billion economic recovery package, arguing that the urgency of the economic crisis had at least for now outweighed the need for unity.
“I’m happy to get good ideas from across the political spectrum, from Democrats and Republicans,” he said at the Monday night news conference. “What I won’t do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested and they have failed. And that’s part of what the election in November was all about.”
“It’s a little hard for me to take criticism from folks about this recovery package after they presided over a doubling of the national debt,”
“I’m not sure they have a lot of credibility when it comes to fiscal responsibility.”
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This could be called a “reality check” tour.

Robert Gibbs, the White House press secretary, decried what he called a “myopic viewpoint in Washington,” disconnected from the troubles of the country. “…there’s a whole different conversation in Washington than there is out here,” said David Axelrod… “If I had listened to the conversation in Washington during the campaign for president, I would have jumped off a building about a year and a half ago.”

There comes a time when obstructionism simply has to be out-voted. As the saying goes, “You can lead horses to water, but you can’t make ’em drink.”  You sure can’t let them keep others thirsty.

Follow the Times link for the whole story.


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Written by Monte

February 10, 2009 at 10:37 am