Nobel laureate and economist Joseph Stiglitz says tax cuts aren’t the way to nurse the economy back to health.
“We clearly need a stimulus,” the Columbia University professor says in a recent interview with the Financial Times.
Unfortunately, Obama was pressured by Republicans to include substantial amounts of tax cuts, Stiglitz says. Yet, “the problem with tax cuts is that their bang for the buck is very low,” the economist argues
For example, Stiglitz says, only 40 percent of the money given to Americans in the tax rebate of 2008 was spent within the next nine months.
“With Americans having a huge overhang of debt, they are quite rational in deciding not to spend money for perhaps the first time in their adult lives. It’s good for their balance sheets, but in terms of bang for the buck, it’s bad.”
Debt isn’t the main concern now, Stiglitz argues.
“In the long run, we have to address our debt problem, but in the short-term, we have to get our economy going,” he says. “If we don’t, the deficit will rise, because tax revenue will fall.”
Stimulus spending will expand the deficit too, he acknowledges. “But if we do spend money, and it works, at least there will be jobs.”
Other experts disagree, of course.
Publisher Steve Forbes, for example, says tax cuts are exactly the solution.
“If you want to throw around a lot of money, they should have reduced the payroll tax in half for two years,” Forbes tells Bloomberg.
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