News
We Don’t Need More Tax Cuts
Republicans in Congress seem pretty sure that tax cuts are the way out of the recession, and they want to see more in the stimulus package that goes to the president’s desk. But when they go to vote on the package today, they’ll likely be taking the country in the wrong direction: Americans need more government spending, not more tax cuts.
Consumers and the federal government have very different time horizons. Right now, consumers are worried about whether they will have their jobs next month, or next year. They’re facing huge uncertainty not just about their income but also about the value of their homes and other assets. Given a tax break, most of the still-employed might prefer to simply bank the extra money, just in case. And for the jobless minority, tax cuts are a blunt instrument; increasing unemployment benefits is a much more targeted, cost-effective way to replace their income.
Government, on the other hand, has a much longer time horizon. The question for Congress and the Obama administration is whether the government will be solvent not next year, but in 20 or 50 years. As a result, government can be less risk-averse. It can pull the trigger and spend money while consumers are held back by uncertainty.
Some politicians endorse tax cuts over spending because they believe that the government wastes money – that consumers know better how to use money efficiently. But in this case, the priorities for government spending are clear.
Spending can help the economy now and in the long term. America’s infrastructure is sorely neglected, outdated and poorly maintained. Spending to improve the infrastructure for transport, energy and communications would create jobs today while enhancing the economy’s long-term potential to grow.
That long-term effect, which is not necessarily shared by consumer spending, has another important aspect. If investors raise their expectations for future growth, they will be more likely to lend the government the money it needs to finance this spending. That means that today’s borrowing will cost future generations of Americans less.
The same effects might be achieved by investing in America’s educational infrastructure – its networks of schools and universities – and in the basic research that, one or two generations down the road, will create the innovations and industries of the future, including alternative energy sources.
It’s also axiomatic in economics that government spending, when done efficiently, stimulates the economy more than tax cuts. And tax rates are already low, perhaps dangerously so, thanks to former president George W. Bush. It’s time for America to leave its obsession with tax cuts by the wayside and spend its way into recovery.
Daniel Altman is president of North Yard Economics and author of Connected: 24 Hours in the Global Economy.
Tags: Discussion
16 comments for “We Don’t Need More Tax Cuts”
Post a comment
Special Sections
Amen
i am no economist…but I am not so sure tax cuts is the answer…
tax cuts may seem like saving.. which may seem like more money in hands of the people…. but maybe Tax cuts should come with a clause that it should be reinvested in business, inventory, or Marketing or something to fuel more business… ” extra money in your hand is one thing… using it wisely is another thing all together. ( all be it… once one person spends it..someone else just made a sale..)..But then businesses are going under – the weaker ones first…. and Government is proposing bailouts.. It seems to me that the government needs all the money it can get…. Leave Taxes and help people/ businesses in some other way may be best…
May God Bless America
in God we trust!!
peace!
Bridgette
I think it’s interesting that you claim it’s “axiomatic” that government spending is a more efficient stimulus than tax cuts. To paraphrase one of my favorite economics writers, Thomas Sowell: depending on government spending in an emergency is like sending a letter to the fire department to let them know your house is on fire.
It will be months, nay, years before any of the money given to the government ends up in circulation because it has to make it through grant offers, committees, and other bureaucracy.
We might not need more tax cuts, but we do need government to start making spending cuts. The government needs to make the difficult choices of what really is a necessity for survival and the subsidies that need to be cut even though there might be high powered people behind them. I have cut every bit of fluff and stuff out of my life just so I can pay my taxes. It’s only fair the government do it as well.
As much as we might like to think so, the U.S. government is not omnipotent. It is not “too big to fail” and it can’t fix everything. The talk of enormous government intervention is actually paralyzing the nation. There are a few bright spots where intelligent business people and concerned citizens are taking action. This is where the fuel to light the economic fire will come from. Giving handouts will only bankrupt our nation and create a toxic sense of entitlement. I eagerly encourage you all to read this article: http://www.politico.com/news/stories/0109/18068_Page2.html. It may sound harsh, but what if we all hold our breath and this doesn’t work. If we focus on helping ourselves now, we will certainly come out on top, AND our government will not be in enormous debt in the end!
I think we should substantially raise taxes on those who make more than $3M per year…. say 80%, and reduce taxes on people that make less than $100K.
I think it’s too early to start raising taxes now. In the long term, yes, we will need higher taxes to pay for all the debt we are incurring now – and the debts incurred by the Bush Administration, too. But to raise taxes now would be counterproductive.
The same goes for cutting spending. It’s true that we can do a lot to make spending more efficient. But if you cut now, you risk making job losses worse.
What we need is spending targeted at areas that help the economy in the short and long term: creating jobs now, and enhancing the potential to grow in the future.
Today I’ve been hearing Republicans say that educational programs like Head Start don’t create jobs. Huh? Where do they think the money goes? You have to pay someone to teach those kids! Someday these folks will realize that the vast majority of American jobs aren’t based in factories.
well, it seems to me that cutting taxes and increasing spending got us into this mess in first place, so more of the same is tricky for me.
Actually there is a lot to not like about this Bill, but here is a link http://www.femisex.com/content/big-brother-watching-you-and-his-name-obama%E2%80%94health-care-obots-a-bad-idea
(Bloomberg via Femisex) to something that really freaked me out:
“Your medical treatments will be tracked electronically by a federal system….But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective.”
It seems odd that i had to travel to outlier news sources to find this out!
Actually, Kathy, the whole idea of the coordinator of HIT is to ensure that medical care providers use a uniform, secure system for exchanging medical information in order to eliminate errors in treatment.
Coordination of care, as it is known, is one of the most important areas where American health care can improve. The lack of coordination – when doctors and hospitals fail to share accurate information about patients – is likely to be responsible for thousands of deaths every year.
There is a role for government here, because no single provider has the incentives to create and monitor this standardized system on its own. It’s not that the government is trying to see what medical problems you have. Rather, it’s trying to make sure that every doctor or nurse that sees you receives a complete and correct history, so you don’t receive the wrong treatment.
actually Daniel, i am a health care provider, and the language of this bill would dictate what i may or may not do, Not what is best option, which is known as Standards of Care and is already widely implemented in medicine.
This bill is scary, very scary. I have worked in managed care, VA systems and private practice. Also, the spending bill calls for the trasfer of millions to Medicaid, and I must say this is ill-conceived to say the least. who exactly will care for these folks? Believe me, millions of middle class workers will not be able to see any of their regular doctors if transfered to the free clinic system, and where is the continuity of care there? This just doesn’t make any sense, and dressing up mandates on how i must treat patients is of little use to a better system. And certainly shoving it thru in a spending bill is Not the way to bring about meaningful change in health care.
[...] By Daniel Altman ⋅ 10:00 am February 10, 2009 ⋅ 10 comments [...]
I grew up hearing stories about the Depression from my father and grandparents. One interesting thing they talked about was the then President Hoover not wanting to unbalance the budget, based on advice form his Sec. Treasury at the time. Eventually, Dep. Sec. Ogden persuaded Hoover to loosen the faucet. But at that point, it was impossible to “push a string”.
I worked for John McCain’s campaign in political outreach (kept Pres. Obama from winning my county too), so I should be manning the ramparts and defending what the Republican minority is doing to stall the Stimulus Bill. I would, but for the fact that there are few if any Republican economists supporting the Republican politicians efforts. Furthermore, what I saw in Florida shocked me–they were experiencing last Summer what many will face soon. And none of us will like it. It’s depressing.
Gov’t may be a bad spender, but the American people, whether just as consumers or CEO’s have shown that they are no better. Let’s speak the unspeakable–the American consumer wanted easy credit to live beyond their means. Most of us did it, at least for a bit of time, and it was a blast. Good times had by all. But that’s over, with a thud.
Now we are like hung-over frat kiddies swearing to the echo of the toilet that we will never do it again and just want this horror to go away. Our friend, the Republican minority, still holding our head, is telling us to man-up and party-on–we deserve all of the booze we can drink. And the gov’t, playing the part of our nagging girl friend, is telling us to cut the crap, look at where we are, and try to focus long enough to make a clear path towards fulfilling that goal.
Americans suck at discipline. Our politicians are bad at it. But the American people are…well, frankly, worse. Neither has balanced it budget in decades. Otherwise, the average American wouldn’t be financially solvent for 30-days, but for much longer. But at least some in politics have a sense of serving the nation and focusing on the longer term.
The Republicans are just looking for advantage over Obama, Pelosi, and Reid, not to help the nation but to help the Party. Frankly, after dealing with my campaign’s economic staff, including Holz-Eakin, I’m glad we have President Obama. Otherwise, if you think we are in it now…
Jim, i have become a fan of a website that is red/blue blend and today they posted a very interestng item on the moral hazard of Americans (to which you speak) and what should not be done to assuage that. I think you might like it. here is a link to Its the Greed Stupid
http://www.femisex.com/content/it%E2%80%99s-greed-stupid-both-ours-and-theirs-moral-hazard-must-not-be-rewarded
The story gives anecdotes of moral hazard by Americans and seems to say this is what we risk as a country if we come swooping into their rescue. I have turned away from mainstream media after this election, b/c they can’t seem to tell anything straight these days.
Tax cuts? How will that benefit people with little or no income? People who pay little or no tax? It’s just another gift to rich Republicans at the expense of ordinary working people.
Did anyone note that last years’ stimulus checks only went to those with a fairly substantial income? The poorest got nothing.
It boggles the mind that ordinary people can vote for Republicans year after year and they are totally ignorant of this campaign to screw the people who make them rich.
Henry Ford had an idea that we should remember today: ‘every employee should have enough income to buy the products we sell.’ And he was true to his word. Ford workers were well paid and the company prospered.
How would you characterize the current attitude of Management, Stockholders, Lobbyists and Elected Officials toward Workers and their families?
Amen. Let’s spend. Republicans have harped on tax cuts because it’s the exact opposite of what’s in the stimulus bill. In other words, if the bill was high on tax cuts, Republicans would say ‘spend’ just to be difficult. When are they going to learn it is should not be us against them, but all of us together working on a solution? C
are you suggesting Obama dump his promise to cut taxes on 95% of folks?
remember it was gop tax cuts and gop spending that got us into this mess, and now we are going out and doign more of the same. That was essentially what Obama ran on, tax cuts and increased spending. yes we wanted change so badly we ignored the details.
it is the housing mess that got us into this and everything but the houseing crisis is being dumped into this bill.