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Stimulation Nation

Andrew Sullivan alerts us to Bruce Bartlett’s new column in Forbes. He argues the stimulus package is working… and that the tax cuts were the least effective. In case you aren’t aware, Bruce Bartlett is a former Treasury Department and presidential advisor under Reagan.

The CBO also looked at the stimulative effect of various parts of the stimulus package. It found that purchases of goods and services by the federal government–such as for public works–had the largest bang for the buck, raising GDP by $2.50 for each $1 spent. Transfer payments had a lesser impact, but were still significantly more stimulative than tax cuts. Moreover, tax cuts of the sort favored by Republicans have the least impact. According to the CBO, tax cuts for low-income individuals raise GDP by as much as $1.70 for every $1 of revenue loss, while those for the rich and for corporations raised GDP by at most 50 cents for every $1 of revenue loss.

Lest one suspect the CBO of bias, private economists have also found that tax cuts are far less stimulative than spending under current economic conditions. Mark Zandi of Moody‘s (MCOnewspeople ) Economy.com, an advisor to John McCain last year, recently testified before the Joint Economic Committee of Congress that the Republicans’ favorite tax proposals–making all the Bush tax cuts permanent and cutting the corporate tax rate–would raise GDP by at most 37 cents for each $1 of revenue loss. By contrast, increased outlays for infrastructure, aid to state and local governments and extended unemployment benefits increase GDP by between $1.41 and $1.57 for every $1 spent.

If anyone is interested, I’m reading Bartlett’s new book The New American Economy which looks at all of these issues further.
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