How stimulative will these tax cuts be?
I think the personal tax cuts will likely lead to more spending, but one problem is that much of what we tend to buy comes from outside the U.S. The impact on U.S. employment is, thus, blunted. Corporate tax cuts aren’t likely to achieve much at present, since investment incentives don’t create much additional spending when capacity utilization is this low. Even subsidized investments don’t work well when 30% of your current capacity isn’t being used. Does the chance that many Americans will save all, or part of, the tax rebate included in the package present a problem? The tax rebate is being done differently than the Bush Administration’s. This time around, it involves adjusting the withholding schedule, which spreads it out rather than giving people one lump sum. The drawback to that is there won’t be one quick surge. The benefit is that people may spend more along the way. Psychologically, consumers may be more likely to spend the much smaller amount on meals outside the home, for
