TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Tuesday, November 30, 2010

CBO: Tax Cuts Were Least Effective Stimulus in Recovery Act

The Congressional Budget Office has released Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output From July 2010 Through September 2010 (Nov. 2010), which reports that the tax relief included in the Recovery Act had less of a stimulative impact than either government purchases or transfer payments to individuals and governments.

CBO_Page_1 
CBO_Page_2 

Center on Budget and Policy Priorities, New CBO Report Finds up to 3.6 Million People Owe Their Jobs to the Recovery Act:

Among ARRA’s most effective provisions for saving and creating jobs, according to CBO’s estimates, are direct purchases of goods and services by the federal government, transfer payments to states (such as extra Medicaid funding), and transfer payments to individuals (such as increased food stamp benefits and additional weeks of unemployment benefits). CBO’s estimates indicate that tax cuts are less effective job producers, and tax cuts for higher-income people and corporations have very low bang for the buck.

http://taxprof.typepad.com/taxprof_blog/2010/11/cbo-tax-cuts-were-least-effective-stimulus-in-recovery-act.html

Congressional News, Gov't Reports, Tax, Think Tank Reports | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef0147e043a1d0970b

Listed below are links to weblogs that reference CBO: Tax Cuts Were Least Effective Stimulus in Recovery Act:

Comments

"The Congressional Budget Office is staffed by SOCIALISTS!"

Posted by: Frank G | Nov 30, 2010 12:10:46 PM

If purchases of goods and services by the federal government provide the best stimulus to the economy, why is cutting defense spending at the top of every progressive's wish list?

If tax cuts are so poor at stimulating the economy, why are they at the top of every conservative's wish list?

It's all about politics. Facts are weapons to be used when they are convenient, and ignored when they are not.

I remain convinced that the best stimulus would be a demonstration that our government will be able to avoid default on its debt, including the de facto default of hyperinflation.

Posted by: AMTbuff | Nov 30, 2010 12:23:43 PM

Is this like "jobs created," I mean jobs created "and saved," and mean "lives impacted?" The CBO has to go with the numbers provided to it by Congress and the Administration, so it becomes more of an accounting project rather than an auditing service for accuracy.

Posted by: Woody | Nov 30, 2010 2:32:32 PM

"which reports that the tax relief included in the Recovery Act had less of a stimulative impact than either government purchases or transfer payments to individuals and governments."

Actually, that table is an input to their analysis, not an output of their analysis. They used estimates for the multipliers from other data sets and then multiplied the amount spent in reality against those multipliers.

The data that you are highlighting was most recently summarized by the JCT in 2009 Feb. It's not new nor does it appear changed in the slightest.

Posted by: Craig | Nov 30, 2010 3:44:54 PM

Temporary tax cuts don't change expectations, which is the whole point of stimulus.

Economic Growth derives from increased productivity. Govt spending targeted to unproductive sectors (i.e., government payroll, housing support, financial sector support) is unhelpful; when combined with new expectations of much higher taxes caused by massive borrowing, government spending hurt the general economy during the 1930s, the 1970s, and 2007-2010.

Posted by: guy in the veal calf office | Dec 1, 2010 10:05:11 AM

@AMTbuff: "If purchases of goods and services by the federal government provide the best stimulus to the economy, why is cutting defense spending at the top of every progressive's wish list?"

Um, perhaps because buying weapons is the WORST POSSIBLE WAY to spend money? We might as well just take the money we're spending on advanced strike fighters and dump it into a volcano; the planes aren't useful against any of the enemies we face (unless al Qaeda has acquired a brand-new air force that's somehow not made the news), and aren't useful for anything *else* either. Given the constraint of a right-wing mindset of "NO NEW TAXES EVAR", it's a choice between wasting money on guns or spending on real things (infrastructure, etc) that deliver real returns to the country.

Posted by: Matt | Dec 1, 2010 10:36:53 AM

"We might as well just take the money we're spending on advanced strike fighters and dump it into a volcano"

The multiplier must come from the fact that the money is not dumped into a volcano. It is paid to American workers and suppliers. Presumably they spend it rather than dumping it into a volcano.

The stimulus effect is similar to hiring government employees (or just not firing them): money flows to Americans who are providing some service to the public. One can argue about the wisdom of either type of expenditure, but the stimulus effect should be very much the same.

Posted by: AMTbuff | Dec 1, 2010 12:20:50 PM