Obama's lessons in tax cuts - Macleans.ca

Obama’s lessons in tax cuts


What if you cut taxes and no one noticed? And then they blamed you for actually raising their taxes…

There has long been a policy debate about how best to do tax cuts to “stimulate” the economy. Bush did it with one-time lump sum rebate checks in 2008. Whereas in his stimulus, Obama did what economists say is the more stimulative approach — stretch the cuts over time so people have bigger paychecks week after week. The theory is that people are more likely to save a one-time lump sum, while they are more likely to spend the incremental weekly increase, thereby injecting more money into the economy. Turns out the problem with the latter approach is that they hardly notice:

From Obama, the Tax Cut Nobody Heard Of (NYT)

In the Peter Baker interview with Obama published over the weekend, which is worth a read if you haven’t read it already along with the lengthy transcript excerpts, Obama addresses this problem as well as acknowledges another tax-cut mis-step:

“Now in retrospect, I could have told Barack Obama in December of 2009 that if you already have a third of the package as tax cuts, then the Republicans, who traditionally are more comfortable with tax cuts, may just pocket that and attack the other components of the program. And it might have been better for us not to include tax cuts in the original package, let the Republicans insist on the tax cuts, and then say, O.K., you know, we’ll compromise and give you your tax cuts, even though we had already proposed them. “

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