I quoted an economist a few days ago saying that extending unemployment insurance once again was not only the right thing to do, but good economic stimulus for the economy. Her argument is that the unemployed have no choice but to spend the money immediately, thereby funding other businesses and jobs. And, while government checks aren’t always good because it can encourage people who can work to avoid it (the long-time knock against welfare), that’s not the case here because there are so few jobs. Our commentors response was typical: grumbling about liberal give-aways in a lousy economy.
Here’s a bit of support for her statement from another source, Moody’s Economy.com, generally considered politically middle-of-the-road. It calculates return on investment for either tax cuts or government payments.
Tax Cuts Nonrefundable Lump-Sum Tax Rebate 1.01 (times investment) Refundable Lump-Sum Tax Rebate 1.22
Temporary Tax Cuts Payroll Tax Holiday 1.24 Job Tax Credit 1.30 Across-the-Board Tax Cut 1.02 Accelerated Depreciation 0.25 Loss Carryback 0.22 Housing Tax Credit 0.90
Permanent Tax Cuts Extend Alternative Minimum Tax Patch 0.51 Make Bush Income Tax Cuts Permanent 0.32 Make Dividend and Capital Gains Tax Cuts Permanent 0.37 Cut in Corporate Tax Rate 0.32
Spending Increases Extending Unemployment Insurance Benefits 1.61 Temporary Federal Financing of Work-Share Programs 1.69 Temporary Increase in Food Stamps 1.74 General Aid to State Governments 1.41 Increased Infrastructure Spending 1.57 Low-Income Home Energy Assistance Program 1.13
What determines the amount of ROI is whether it is saved or invested, and how effectively it is invested. Tax cuts are seen as having less of an impact because, in this economy, the amount tends to be saved rather than spent.