About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

122 IRET Congressional Advisory 1 (2001)

handle is hein.taxfoundation/iretcgadv0119 and id is 1 raw text is: November 30, 2001 No. 122
STIMULUS OR SILLINESS?
The stimulus package is rapidly becoming
cosmetic rather than substantive. New and nearly
useless provisions are being suggested based on

These constructive features are being short-
changed and watered down in favor of provisions
that would give consumers money to spend to
pump up demand. Two new ideas are a brief
state and local sales tax holiday (reimbursed by
federal revenues) and a one month payroll tax
holiday. Both are advertised as ways to put money
into consumers' pockets fast, and are offered in lieu
of giving $300 to $600 dollar rebates to people who
did not pay income tax and were not eligible for the
first round of rebates last summer.
That analysis is flawed. The sales tax holiday
would do no measurable good. The payroll tax
holiday would do a bit of good, but not by
expanding consumption.  These plans, and the
rebate scheme they would replace, and indeed any

theories that were discredited
in the 1960s and 1970s, and
useful provisions are being
scaled back to pay for them.
The best that can be said for
the bill at this point is that the
economy may have recovered
before the bill is passed.

The best tax
table are 30

proposals on the
percent expensing

and repeal of the corporate AMT,
followed by acceleration of all the
pending marginal rate cutts (not
Just the bottom rates).

kind of tax cut, would not give
people more money to spend.
(They don't work by giving
businesses money to spend
either. It is not necessary to
refund  old  AMT    credits
immediately; just allow them
to be claimed over time.) The
federal revenue used for these

The best tax proposals on  _
the  table  are  30  percent
expensing and prospective repeal of the corporate
AMT, followed by acceleration of all the pending
marginal rate cuts (not just the bottom rates). The

_schemes might otherwise be
used to repay more federal
debt, which means it would go back to the
bondholders, who would spend it themselves or
lend it to others to spend. Alternatively, it might be

investment incentives would
work by making it easier, after
taxes,  for  a  prospective
investment to earn enough to
cover its own costs, thus
enabling businesses to create
and  employ   more   plant,
equipment, and buildings. The
personal tax rate cuts would

Tax provisions that are piurported
to work by giving individuals or
businesses money to spend would
do nothing of the sort.

used   for  more   federal
spending, or a larger tax cut of
a more pro-growth kind. This
federal budget constraint
dictates that there be the same
initial demand either way.
(The only way federal policy
can boost spending without
first encouraging production is

encourage additional work, hiring, saving and
investment by raising after-tax returns to workers
and entrepreneurs.

by increasing the money supply, but that is
monetary policy, and is independent of federal tax
and spending changes.)

Institute for
Research on the
Economics of
Taxation

IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the
public about policies that will promote economic growth and efficient operation of the free market economy.
1730 K Street, N., Suite 910, Washington, D.C. 20006
Voice 202-463-1400 * Fax 202-463-6199 0 Internet www. ret.org

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most