Monday, January 5, 2009

Tax cuts

Is Barack Obama pandering to the Republicans by including such a large proportion of tax cuts in his stimulus bill? Most economists who have studied the issue will tell you that tax cuts are not necessarily the most efficient way to stimulate the economy, but Republicans always support tax cuts, almost as an ideological reflex. It is almost a mantra for Republicans to say that people spend their money more wisely than the government does, notwithstanding all evidence to the contrary. It is such a self-evident proposition that they never need to prove it. And of course tax cuts are always politically popular. Almost everyone believes that they would rather decide how to spend some money than someone else.

Obama's people should and probably do know better. Their preference is for infrastructure spending that will immediately put people to work, and will give us some useful projects to show for the deficit spending they plan. But they are including a substantial amount of tax cuts as well, in part to fulfill a campaign promise, and in part to get bi-partisan support for the stimulus bill. Could it be also that Obama wants to take the tax-cutting issue away from the Republicans, in the way that Clinton took the crime issue and the welfare issue away from the Republicans? If so, that could be a brilliant move. What will the Republicans have left, besides accusing the Democrats of being soft on terrorists, or pro-gay marriage?

I also hope that Obama couples the tax cuts he is proposing with a message about the shared sacrifice that is going to be necessary to pull the country out of recession. Perhaps coupling the payroll tax cuts he is proposing with a graduated gas tax hike would send the message that not only are we going to spend our way out of our problems, we are also going to modify our wasteful energy habits to help put the country on a better financial and environmental footing.

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