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SMI: “Tax Cuts Provide Better Stimulus Than Government Spending”

June 3rd, 2009 by MarkTwain · No Comments

Good piece from Dr. Haslag and Mr. Stokes. We generally agree that tax cuts are better long term for an economy than government spending, but we still must go back to the point we made in an earlier post. We say no thanks to tax cuts with borrowed and printed money that our children and grandchildren will have to eventually pay back. With the rising inflation that printing money brings, what good is a tax cut if the money has less purchasing power?

By Dr. Joseph Haslag and David Stokes

It would have been impossible to predict in advance how the Missouri General Assembly finally decided to distribute the stimulus funding that the state received from the federal government. Although legislators ultimately decided to spend the stimulus to bolster various budget shortfalls and on large-scale capital projects, the state House proposal to use a portion of the funds to provide Missourians with a tax cut deserved more consideration. Dismissing such an idea out of hand would ignore the tradeoffs present in any policy decision. Ideas need to be vetted instead of cast aside. In this way, we do justice to the legitimate discussions of economic policy.

Every dollar spent as part of the stimulus package is a dollar of debt that will have to be repaid by future taxpayers. (We accept here that the objective of the stimulus package is to increase economic activity.) Whether each dollar is well-spent or poorly spent does not change the fact that the spending creates additional debt. If the dollar is spent well by government officials, and promotes economic activity that stimulates our economy and encourages job growth, the value of the present spending may arguably outweigh the harm of the future debt. In such cases, government investment would yield returns in the form of greater future productivity. Transportation infrastructure is probably the best example of this — and, not surprisingly, is the least controversial part of the stimulus plan. In contrast, poorly spent dollars do not generate increases to economic activity, and so such a plan would fail to meet its primary goal: to stimulate the economy. It is more likely that, in such an instance, the present value of the dollar would be outweighed by the future burden of the debt. Read more….

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Tags: MO Legislature · Show Me Institute

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