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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

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