NCPA - National Center for Policy Analysis

"Stimulus Package" Lacks Supply-Side Tax Cuts

November 1, 2001

The economic stimulus bill that the House rushed through -- which is now pending in the Senate -- contains provisions that won't stimulate the economy, says Bruce Bartlett.

A good feature of the bill is the repeal of the unfair corporate Alternative Minimum Tax.

  • However, the bill also gives corporations $25 billion in rebates for past AMT payments.
  • There is no evidence that rebates will cause them to invest -- which is the whole point of stimulus -- and a great deal to suggest they will use the money to pay down debt, or send it out to shareholders by increasing dividends.
  • What is essential for any stimulus plan to work is to raise the return on future productive economic activity -- such as work, saving and investment -- and that is why economists generally favor tax-rate reductions over rebates as a means of stimulating economic growth.

The only meaningful stimulus provision in the House bill is the one that increases depreciation allowances for new investments. The bill could be improved by some supply-side tax cuts, like those enacted in the Bush administration's tax cut bill earlier this year.

But it is doubtful that the bill will be improved in the Democratic-controlled Senate -- which is more likely to abandon tax cuts in favor of increased spending.

Source: Bruce Bartlett (National Center for Policy Analysis), "Tax Rebates Won't Stimulate the Economy," Wall Street Journal, November 1, 2001.

For text


Browse more articles on Economic Issues