A lot of people are suggesting that the way to stimulate the economy out of a recession at this time is through tax cuts. Even some smart people are suggesting that.
I don’t get it. These tax cuts are supposed to provide people with an incentive to work harder. But… does anyone think the folks getting laid off right now really need an incentive to find another job? And consider someone who lost a job that pays $80K – say they’re debating whether to take a much less adequate (for them) job that pays $40K or to continue searching, keeping in mind that a bird in the hand is worth two in the bush. Is a tax cut going to be the thing that makes the difference?
On the investment side of things… there’s still a lot of money sloshing around with no place to go. Why? Because nobody knows where anything is going. Every so often, bills come due, and it seems that in some industries, the doo-doo hits the fan. Nobody knows how big the dry-cleaning bill is going to be even in the industries where everyone can see the doo-doo, and people are worried about where else doo-doo might lurk. And so far, the doo-doo has turned up far and wide. Which means that for the time being, the attitude seems to be – who wants to put money somewhere if that somewhere might be the next CountryWide? How big does the tax cut have to be for you to buy share of Ambac? Or make you interested in renting that little store front on Main Street and putting out your shingle… not knowing how long this recession is going to last?
I imagine the problem right now is that people want to work and want to make more money but cannot. Tax cuts are not going to help.
Note… Avedon Carol makes the same point more succinctly.
Correction… Added the word “off” to the third sentence of the second paragraph. It kind of changes the meaning of the entire post. My apologies. Other minor edits made for readability.