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Obama's tax cut
Deciding whether tax cuts or public spending will save the economy
W

hat happened
President-elect Barack Obama plans to include $300 billion in tax cuts in an economic stimulus package that could reach $775 billion over two years. The tax breaks are aimed at attracting Republican support needed to win quick congressional approval. (The Wall Street Journal)

What the commentators said
“Let’s not mince words,” said Paul Krugman in The New York Times. It will take “swift, bold action” to prevent a second Great Depression. But even with tax cuts as a sweetener, some Republicans are so opposed to the surge in public spending we really need that the stimulus package might end up being too late and too watered down to do any good.

“No stimulus would be better than a bad stimulus,” said Investor’s Business Daily in an editorial. So if handing Congress a blank check to build roads and schools is the best we can do, no thanks. But a major study of tax changes shows that every $1 in tax cuts adds $3 to the GDP, so cutting taxes is the way to go if we want a stimulus that really works.

That’s not the way the last tax rebate turned out, said Hilzoy in The Washington Monthly. By some estimates, taxpayers saved 80 percent of that so-called stimulus. So public spending offers more bang for every stimulus dollar—plus, we badly need to upgrade our bridges and mass transit systems, anyway.

The best way to ensure that this doesn’t turn into “a federal boondoggle bonanza,” said Harvard economics professor Edward L. Glaeser in The Boston Globe, is to divvy up the stimulus between private citizens and local governments. Low- and middle-income taxpayers badly need a payroll-tax break, and shoring up local government balance sheets will “help ensure that those governments don’t make the downturn worse by cutting spending during a recession.”

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