Thursday, January 10, 2008

Momentum grows for fiscal stimulus

Economic Policy Institute economist, Jared Bernstein, has a very good blog, Stimulus 101, that explains why an economic stimulus is needed to to jump start the faltering national economy and identifying the most effective forms of federal intervention.

In a rebuke to the Bush administration's penchant for upper income tax cuts he writes:

"Tax breaks for rich people are unlikely to generate much stimulus because those folks are not income-constrained.

For example, ...a dollar of revenue sacrificed for a dividend or capital gains tax cut yields a measly nine cents."

I pointed out in a recent blog that the administration's proposal to make the 2001 and 2003 tax cuts permanent would have no impact because it would not effect the economy until 2011, when the cuts lapse.

The economy needs a jump start now, not three years from now!

Bernstein persuasively argues for short term, targeted spending:

"You get a much better bang-for-the-stimulative-buck from direct spending. A dollar spent shoring up Unemployment Insurance yields $1.73; a dollar spent on fiscal relief to the states yields $1.24. This last idea—ratcheting up state grants from the Feds—is particularly important right now, since many state and city coffers are coming up short due to the local revenue impacts of the housing meltdown.

In short, especially given the ideologies of the folks in charge, we should favor direct spending stimulus ideas over tax cuts."

A New York Times editorial, Not Just the Fed, has joined the chorus calling for action: " is imperative that President Bush and Congressional leaders begin a serious discussion about how to help revive the economy, if need be, with a short-term stimulus package."

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