Tax Cuts in the Stimulus

Obama has taken some flak from the left for including $300 billion worth of tax cuts in the stimulus package.  Tax cuts have traditionally not stimulated an economy during recession, as people shovel the money under their mattresses instead and aggregate demand stays flat.

In this crisis, however, people need money to pay for essentials like their mortgage payments.  The tax cuts target that socioeconomic bracket; the incoming Obama administration thinks that no one from this group can afford to save the money.

It’s also important to note that there’s a surprisingly low ceiling to infrastructure investment. Doubling the current federal infrastructure budget would compose only eight percent of a $75o billion package.  The rest of the stimulus needs to go somewhere, and tax cuts are not only politically beneficial but ease the recession’s impact on the less well-off.

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