Spend $1.00 of ‘Stimulus’ to create $0.70 in GDP is not exactly what I would call a very good ‘multiplier effect.’
Via Larry Kudlow:
In a watershed study, former Treasury economists Gary and Aldona Robbins argued a few years ago that tax cuts aimed at capital and business produced the biggest economic benefits. For example, for every tax-cut dollar on capital gains, $10.61 of new GDP is created. For every dollar of accelerated business-investment tax write-offs, $9 of new GDP is created. And for every dollar of corporate tax cuts, $2.76 of new GDP is created.
This bang-for-the-buck analysis contrasts sharply with estimates for increased government spending. According to the White House, every dollar of new government spending creates about $1.50 of new GDP — much weaker than the effects of business tax cuts. And the White House analysis looks like a stretch. The IMF has a model that says every additional dollar of government spending creates only $0.70 of new GDP. So you have to borrow a buck to get 70 cents back. Not a good trade.
Clearly, neither of these spending multipliers holds a candle to the benefits of lower business tax rates. Incidentally, for deficit worriers, corporate tax cuts pay for themselves, as do lower tax rates on capital gains.
Fred Smith, the CEO of FedEx, does not have a Nobel Prize in economics. But he founded from scratch a gigantic global transportation and delivery company that has employed tens and tens of thousands of workers, something the Nobelists have never done. And Smith argues that the best job-creating measure would be a significant reduction in the corporate tax rate and a move to full expensing for business-investment tax write-offs. He’s exactly right. (emphasis added)
I was in a ‘discussion’ with a liberal not too long ago about the economy. I made the assertion that tax cuts are the quickest way to improve the economy. The Liberal rolled his eyes… Sighed…..Then went on the “tax cuts! All you conservatives ever offer is that old saw” rant.
Tax cuts might be an old saw, but they work. Every time. Just ask JFK: