Are big tax cuts the right way to stimulate the economy?
President-elect Obama was on Capital Hill yesterday, meeting with lawmakers about his economic stimulus package. The amount proposed for tax cuts — 40 percent of the total package of $800 billion — is much bigger than expected, surprising both Democrats and Republicans.
Tax cuts are in store for individual taxpayers and for businesses. Today, let’s focus on the tax cuts for individuals and the values contained therein.
The plan is to reduce the amount of tax withheld from our paychecks — $500 for an individual, $1,000 for a couple. What would this mean? Bloomberg provides an example: “The $500 tax credit would apply to the first $8,100 of wages, meaning a worker who earns $24,400 a year and is paid twice a month would get about $60 extra per paycheck for four months.”
Tax cuts appeal to Republican values. Indeed, they refer to tax cuts as “tax relief.” This reframes taxes, as George Lakoff describes: “When the word tax is added to relief, the result is a metaphor: Taxation is an affliction. And the person who takes it away is a hero, and anyone who tries to stop him is a bad guy.”
Obama’s “tax relief” plan makes him a hero with Republicans, who have already expressed enthusiastic support. This support will certainly help get the stimulus package passed.
But will it work?
Will the wage earner who makes, say, $24,400 a year spend the extra $120 he or she gets a month, for each of four months, on consumer purchases? Or save it? Or use it to draw down credit card debt?
Tax cuts may stimulate demand in normal times, but these are not normal times. What would you do with your tax cut — I mean, tax relief?
I’ve been raising questions about the values shaping the Obama transition. Yesterday, I asked readers about Bill Richardson’s controversial decision to give up a Commerce appointment.
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