Five Ways to Help the Economy (Only Four Make Sense)

by Alexander C. Hart | July 22, 2010

Republicans have always wanted to extend all the Bush tax cuts, including those that benefit only the very wealthiest Americans. Now some Democrats want to do the same, as my colleague Jon Chait notes.

They say they are simply practicing good economics: “As a general rule, you don't want to be cutting spending or raising taxes in the midst of a downturn,” Kent Conrad (D-N.D.) told the Wall Street Journal. And that statement is true enough. If government reduces spending or raises taxes during a recession, it will tend to reduce demand, making the economic situation even worse. By contrast, if it increases spending or cuts taxes, it will tend to increase demand.

The question, though, is by how much. Research shows that a dollar spent on infrastructure (or, better still, unemployment benefits) will stimulate more activity than a dollar spent on tax cuts for the wealthy. Jon has a detailed chart on the policy options, but just to make things crystal clear we thought we'd give readers a chart comparing extension of the Bush tax cuts for the wealthy and four alternatives:

Sheet 1
Sheet 1

Not exactly a tough call, huh?

Source URL: http://www.newrepublic.com//blog/jonathan-cohn/76484/there-are-better-ways-stimulate-the-economy-extending-tax-cuts-the-wealthy