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1 Robert Carroll, Fiscal Stimulus: Missing the Big Picture 1 (2008)

handle is hein.taxfoundation/ffbbfxz0001 and id is 1 raw text is: FOUN .T!O'N Fiscal Stimulus: Missing the Big Picture? Fiscal Fact No. 115 by Robert Carroll January 11, 2008 The Bush Administration and Congress are reportedly crafting a fiscal stimulus plan to boost the economy after recent signs of economic weakness.' This means either short-term tax cuts or rebates or an increase in government spending. The specific proposals that have surfaced on the spending side include increasing unemployment insurance or food stamps, while on the tax side they include bonus depreciation (i.e., faster write-off of investment), a tax rebate or credit, or a payroll tax holiday. All of these policies are intended to address the potential economic weakness by putting more money into the economy in the near term, but they do little to address issues that face the U.S. economy over the longer term. Rather than debate short-term policies that are likely to be ill-timed and ineffectual, policymakers ought to address broader issues, such as the competitiveness of the U.S. business tax system, to improve the nation's longer-term economic health. Unless fiscal stimulus is well-timed and well-crafted, it is doubtful that it would be effective for addressing the economy's current woes. Disagreement over the best approach usually translates into an actual stimulus package that is enacted long after it might have been useful. Moreover, stimulus packages often become bloated with profligate spending and tax provisions, which may be needed to move a package through the political process but do little to address the economic weakness. Monetary policy is typically viewed by economists as the better approach for providing short-run stimulus. The Federal Reserve Board can act quickly, lowering the federal funds rate to provide broad support to the economy without propping up one particular sector. Indeed, fiscal stimulus enacted by the Congress is likely to be taken into account by the

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