Economic Stimulus: Why Tax Cuts Are a Bad Idea

I’m all for intelligent economic stimulus. And some of the things that the Democrats put in the latest economic stimulus bill look promising. Among them:

  • $550 billion for states. This brings money to the locals, and helps with a bottom up approach that I think is more likely to help than a top down approach that has been taken so far.
  • Extending unemployment benefits. (Too bad the self-employed don’t qualify.) 
  • Help subsidizing Cobra health care for those who lose their jobs.

What I’m not thrilled about in the economic stimulus plan is the measure to introduce $275 billion in tax cuts.

Tax cuts right now are a Bad Idea.

First of all, the small amount that people would be getting — by way of a slightly larger paycheck — would be too small to make a difference in their household budget, and contribute very little to the stated goal of stimulating the economy through consumer spending. The amount of money their talking about in each paycheck, furthermore, isn’t enough to keep anyone in foreclosure trouble from folding. Secondly, we are spending Lots Of Money right now. That means that cutting taxes now will necessitate a raise later. Just as people adjust to their new income level, they will be socked with increased taxes as all of this spending comes home to roost. Politically, this is stupid. It sets up a major problem for whoever finally has to raise taxes while trying to make us face the music that all this crazy budgetary voodoo has to be squared away.

I know that Congress badly wants to spend money in an attempt to stave off a full-blown Depression. And I know that Barack Obama is trying to get them to spend it in a more useful way than they have done so far. But they are both wrong about tax cuts: No matter how many people think they are a grand idea, tax cuts are a bad idea on an economic stimulus level and on a future practicality level.

I’m not an economist, so maybe I’m way off base here. But it just seems like the “real” economists haven’t exactly done the economy any favors. I stand by my assertion that what we really should have is an individual economic stimulus.

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