Fiscal stimulus package will contain at least $275 billion in tax cuts

Posted Jan 23rd 2009 12:45PM by Joseph Lazzaro
Filed under: Forecasts, Politics, Recession

The Obama administration's proposed $825-850 billion fiscal stimulus package will contain a great deal of tax cuts, and the reason is timing.

That's timing as in 'impact on GDP' and 'political timing,' so says economist Richard Felson.

Tax cuts galore

The stimulus package will contain at least $275 billion and probably closer to $300-325 billion in cut tax cuts and tax-related investment incentives because they're "the short-term, immediate-impact fuel in the stimulus engine," Felson said. "The cuts will also attract some Republicans to the plan, which is consistent with President Obama's governance philosophy."

"Tax cuts will have an immediate impact and will show up in GDP rather quickly, within 3-4 months, which will provide some demand in the economy," Felson said. On Thursday, the House Ways and Means Committee approved, via a 24-13 party-line vote, a stimulus plan that included $275 billion in tax cuts, The New York Times reported Friday. Felson said he expects selected House Republicans to vote for the bill on the House floor, and at least 4 or 5 Senate Republicans to do so, as well.

After a House floor vote, the bill will move to the Senate, where Senate Republicans may seek more tax cuts. Bill differences, if they occur, would need to be reconciled by a conference committee.

Meanwhile, the stimulus package's spending component, which is expected to total $400-$450 billion, perhaps more, will provide later-cycle stimulus to the U.S. economy, Felson said. "Some shovel-ready infrastructure projects will begin within a few months, others within six months," Felson said. "Other stimulus measures, such as aid to the states, will provide stimulus stretching 12, 18 months and longer."

The goal, Felson said, is to provide a continual stream of stimulus into the economy, to help jump-start demand.

"A large stimulus package, combined with monetary policy, will create demand, and will also improve business confidence and consumer psychology, with the latter two being almost as important to generate GDP growth," Felson said. "They're all aimed at ending the negative cycle and starting a positive cycle of revenue gains and job creation that are the keys to an economic expansion."

Fiscal Policy / Economic Analysis: Investors and non-investors must give the stimulus plan a chance to work. GDP growth and net job gains will not appear overnight. It took more than a year to create this recession: it will take more than a year to get out of it. Further, more than one stimulus package may be needed, and should be passed in 2010, to maintain or increase demand, if needed.

Tags: Congress, Democrats, fiscal stimulus package, gdp, inthenews, Obama administration, Republicans, tax cut, U.S. economy

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Reader Comments (Page 1 of 1)

1-23-2009 @ 4:07PM

Mike said...

...and $575 billion in wasteful pork. Thank you Lazzaro for your daily gushing Obama update.

1-23-2009 @ 4:11PM

Iridium said...

Is that $275 billion in payments to people who do not pay any taxes or a real tax cut where I will see less coming out of my check every month.

Somehow I think it is the former. My taxes will remain the same and the minimum wage welfare recipient will get a check for $800.

2-02-2009 @ 5:38PM

Richard said...

When tax cuts are mentioned everyone seems to focus on cuts for individuals. The real stimulous tax cuts would be for businesses in the form of accelerated depreciation and lowering the 35% rate they are burdened with. This would promote equipment manufacturing and employment which is what we want to hapen. Is there anything wrong with encouraging business to thrive?