Tax cuts to be large part of stimulus
Employment will be used as a measure of
Kevin G. Hall
Issue date: 2/5/09 Section: Nation & World
WASHINGTON - Tax provisions in the stimulus legislation introduced Monday on the Senate floor would cut Treasury revenues by at least $350 billion in a bid to spark economic activity. Tax experts say the legislation would achieve that goal, but there's plenty of room for improvement.
The nearly $900 billion plan includes tax cuts and credits as well as a wide range of spending on infrastructure, aid to states, energy, the environment and much more all designed to prevent the economy from sinking further.
Many Americans swoon at the high price tag and ask a simple question: How will we know it works?
There's no single answer. The Obama administration has said it will use employment as a metric, expecting the stimulus effort to create or save between three million and four million jobs. However, proving that jobs have been saved that otherwise would've been lost is more art than science.
Another way to measure success is to gauge whether the plan spurs demand for goods and
services. If it boosts demand for things that U.S. companies make or sell, more workers will be needed to make, ship and sell the goods and services.
"The trick from the tax side is putting money in people's pockets in ways that they spend it. How do you get people to do something they otherwise wouldn't do if you just gave them money?" said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture between the Urban Institute and The Brookings Institution, two center-left research organizations in Washington.
In tough economic times, consumers and businesses typically pay down debt and save money in case problems grow worse. That's rational behavior and one reason why consumer spending has plunged. If people are saving, they're not spending, and the economy contracts.
To counter this, the Senate measure would put more money into people's paychecks in small amounts that would be more likely to be spent than saved. Academic research shows that small increases in paychecks are viewed as "spendable" income, while larger lump sums are viewed as wealth to be saved.
The nearly $900 billion plan includes tax cuts and credits as well as a wide range of spending on infrastructure, aid to states, energy, the environment and much more all designed to prevent the economy from sinking further.
Many Americans swoon at the high price tag and ask a simple question: How will we know it works?
There's no single answer. The Obama administration has said it will use employment as a metric, expecting the stimulus effort to create or save between three million and four million jobs. However, proving that jobs have been saved that otherwise would've been lost is more art than science.
Another way to measure success is to gauge whether the plan spurs demand for goods and
services. If it boosts demand for things that U.S. companies make or sell, more workers will be needed to make, ship and sell the goods and services.
"The trick from the tax side is putting money in people's pockets in ways that they spend it. How do you get people to do something they otherwise wouldn't do if you just gave them money?" said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture between the Urban Institute and The Brookings Institution, two center-left research organizations in Washington.
In tough economic times, consumers and businesses typically pay down debt and save money in case problems grow worse. That's rational behavior and one reason why consumer spending has plunged. If people are saving, they're not spending, and the economy contracts.
To counter this, the Senate measure would put more money into people's paychecks in small amounts that would be more likely to be spent than saved. Academic research shows that small increases in paychecks are viewed as "spendable" income, while larger lump sums are viewed as wealth to be saved.
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