February 17, 2009

Tax cuts are a smart move for our tanking economy.

I am behind Barack Obama's tax cut portion of the new stimulus package 100%. During a recession there are two major expectations of the government; tax cuts and government spending. Obama has made large plans for government spending to create jobs. He has also incorporated 40% of the $675 to 775 million dollar stimulus package to be in the form of tax cuts. These tax cuts can be used as a way to create jobs. Utilizing a tax credit for each new job created and also providing incentive to save existing jobs. I believe cutting taxes is a more efficient way to stimulate the economy than handing out checks.

The extra cash money from a stimulus check helps people, but is designed to be spent. When the cash money from a stimulus check is spent it utilizes the multiplier effect and ripples through the economy creating positive economic growth. At least that is how it is designed. At the present moment I believe most people would pay off some debt and put the money in the bank. People, especially if unemployed, are just not spending like the U.S. consumers of 2006, they are scared. Obama is purposing a "Making Work Pay credit" tying stimulus payments to Americans earning less then $200,000, rather than passing out checks. This plan would add money to individuals paychecks, but only about $13. (http://news.yahoo.com/s/ap/20090211/ap_on_bi_ge/meltdown101_stimulus_plan_2)

In the attempt of a short run economic recovery plan i tend to agree with Senator Mitch McConnell, who stated in this article, "if the money were lent rather than just granted, states would I think spend it wisely, and the states that didn’t need it at all wouldn’t take any.” That is a fantastic way of thinking, it gives states incentive to be prudent, but also provides some relief where actually needed. Government spending in a recession is a good thing, but simply passing out cash money with no regard could prove costly in the long run.

2 comments:

Nicole Thomas said...

Why not reduce some of the existing government revenues besides sales tax, like taxes on savings? Would it be a bad thing to increase the liqudity of banks by reducing or removing taxes on bank accounts, if people were not consuming or investing, why not encourage them to save?(Except I've heard that the goal is not to let everyone save at the same time).

sheenapasko said...

I believe the government is focusing on consumer spending and trying to stimulate the economy, while also attempting to leave more money in the homeowner’s pockets to aid in the mortgage crises. I agree banks should be more liquid, there were and are government rules and regulations set in place to specifically ensure banks have a set level of liquidity. Obviously that was not monitored as it should have been and banks are now in trouble as well. Saving in any manner would help banks in the form of liquidity and the multiplier effect. All in all I believe the tax cuts are a great place to start, especially for businesses, which would aid in the incentive to create and save jobs. The savings aspect is important as well, the answer lies in what will have the greatest impact in drawing us out of the recession while trying to minimize inflation.