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.
Tuesday, July 06, 2010
Quote of the Day: Not a Good Trade