Which is a Better ...

8 Things to Learn for 2/2/2009 #7

Which is a better stimulus: tax cuts or infrastructure spending? Well, if you are conservative you argue for the tax cuts. Of course, if you are a conservative, you always argue for tax cuts. That's the problem with ideologues. No matter the situation, the same thing is needed. The economy is soaring? Tax cut time! An expensive war is needed? Tax cut time! The economy is cratering? Tax cut time!

Well, are tax cuts effective stimulus? That's an interesting question. Moody's, known for their independent research, has a method for ranking the different types of stimulus. For every dollar spent on that type of stimulus, Moody has determined the dollar effect on GDP. For example, for every dollar spent on extending unemployment benefits there is a $1.64 increase in GDP. Good stimulus. Easy enough to understand, right?

Well, here are the numbers. For every dollar spent on a cut in the corporate tax rate results in a 30 cent increase in GDP. For every dollar spent on making the Bush tax cuts permanent there is a 29 cent increase in GDP. For every dollar spend making the capital gain tax cut permanent, there is a 37 cent increase in GDP.

For every dollar spent directly on infrastructure spending, there is $1.59 increase in the GDP. For every dollar used to temporarily increase food stamps, there is a $1.73 increase in GDP. That would be game, set and match.

What have we learned? Government spending is better than tax cuts for helping the economy. This begs the question: are conservatives ever right?