Fiscal Stimulus and Tax Cuts

At The Atlantic Derek Thompson reviews the latest lightning bolts from Paul Krugman which seem intended for anyone who suggests that we need to think about backing off on fiscal stimulus. Thompson seems to be in the Krugman camp which is fine and then republishes this graph from Krugman’s blog.

The point being that Reagan’s tax cuts took time to work and critics of the Obama stimulus plan, particularly those insidious conservatives who argue for tax cuts instead of spending, are ignoring history. Fortunately, James Pethokoukis earlier today put this particular graph in context with the following comment:

But as pointed out in the wonderful book “The End of Prosperity” (authored by my pals Art Laffer and Stephen Moore), the way the Reagan tax cuts were structured meant that familes only got a meager 1.25 percent tax cut in 1981 and 10 percent in 1982. When the Reagan cuts really kicked in 1983, so did the economy.

If anything, we might just be proving again that stimulus whether in the form of tax cuts or government spending don’t do much good until the money actually gets into the hands of consumers and businesses. Reagan’s tax cuts appear to have had an effect once they truly kicked in and one can hope that Obama’s spending will have the same effect once the government actually gets around to spending the money.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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