Chief Reagan economic adviser: spending is better than tax cuts when it comes to stimulus

[nodramamama]

I'd love to know what conservative pundits who claim to love everything Reagan will have to say about Barack Obama's observation today to Republicans in congress:

Mentioning conservative economist Martin Feldstein, the chief economic adviser to President Ronald Reagan, Obama said this spending will have a more simulative affect than will tax credits. For every dollar of spending, we get 1.5 dollars' worth of stimulus, he said. For every dollar of tax cuts, we get 75 cents' worth of stimulus.

Of course, those hypocrites will dismiss the opinion of a Harvard/Oxford-graduated Reaganite conservative expert if it makes it harder for Obama to fix the economy.


http://blogs.abcnews.com/politicalpunch/2009/01/scenes-from-a-3.html

Krugman does not seem to differ. He thinks some tax cuts are ok, but that 40% of the stimulus is too much in tax cuts. See here: http://krugman.blogs.nytimes.com/2009/01/05/is-obama-relying-too-much-on-tax-cuts/

[thunder rising]

1. Tax cuts imply income ... with millions out of work, tax cuts are for the favored (ie employed)

So, chin up children. Daddy Bucks wants to see smiles.

[brentspeak]

2. Feldstein is one of the morons who helped get us into this mess

A Harvard or Oxford background does not equal "knows what they are talking about" any more than those with some other background.

[nodramamama]

3. Are you implying that the stimulus should be heavy in tax cuts?

The President, the Nobel Prize winner and Feldstein beg to differ.

[brentspeak]

6. I wasn't commenting on the tax cuts

I was commenting on Feldstein's alleged expertise.

[underpants]

5. Ture but notice how quickly "ideology" and "philosophy" goes out the window

when a situation like this comes up

Not that we have ever had this type of situation before mind you

No more "what we THINK will happen" they have to move now and all their "ideals" are just that-the stuff to get you through Harvard and Oxford and into a good fellowship

[Captain Hilts]

4. Feldstein also agrees that income disparity is a problem. nt

[Thrill]

7. As the bill stands now. Its not 40% of the stimulus

[AJH032]

8. He's right

Tax cuts do not, directly, influence spending in the economy. When taxes are cut, people do not spend 100% of their tax cuts. Usually, people save some portion of it, which does nothing to increase aggregate expenditure and thus production (ie, our GDP). However, when the government spends money, 100% of these funds directly stimulate the economy. After their initial effect (gov't spending having a 100% initial effect and tax cuts having some effect less than 100%), they are subsequently identical (in terms of how the spending "trickles" through the economy), but it is that initial difference that makes all the difference.

Additionally, if you break it down even further, not everyone treats their tax cuts the same way. Thus, it makes less sense on a macroeconomic level to cut taxes for those who save most of their tax cuts (ie, those in the top part of the top bracket). If tax cuts are the tool the government chooses, it makes more sense to cut the taxes for those who actually have a need to spend it, and I'm not talking necessarily from an ethical point of view, but just from the perspective of the macroeconomy. Those who need to spend their tax cuts actually increase expenditure/production more.

[curious one]

9. As long as tax cut does not apply to employers (corporations) it's OK to some

degree. GOP put us in the grave with Bush's wars and etc. etc. etc... Now we need to climb out to safety.

[applegrove]

10. When tax cuts go to the wealthy they don't immediately spend that money.

If the tax cuts go to the poor or middle class..they spend the money. Direct government spending is better.