Tuesday, February 10, 2009
No Stimulus Tax Cuts
"This week the House will be voting on a two-year, $825 billion economic stimulus package. ... The program is immense. Will it work? ... Still, Republicans apparently like that $275 billion, or a third of the package, comes in the form of tax cuts. But to boost output and income, a tax cut must be the right type--one that cuts taxes 'at the margin' on the additional income associated with additional output (supply). And it should be permanent if the gains are to last. ... Except for firms getting TARP money, businesses could carry back losses for five years instead of only two against past profits to get a refund. The carry-back would give businesses cash. But unless taxes are cut on future earnings, it would not encourage more investment and hiring", Stephen J. Entin at the WSJ, 27 January 2009.
I agree with Entin. Much of the tax cut will have no effect "at the margin". Thinking of the effects of a policy "at the margin" seems to be very difficult for politicians.