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 CutsNonrefundable Lump-Sum Tax Rebate 1.01 (times investment)Refundable Lump-Sum Tax Rebate 1.22
Temporary Tax CutsPayroll Tax Holiday 1.24Job Tax Credit 1.30Across-the-Board Tax Cut 1.02Accelerated Depreciation 0.25Loss Carryback 0.22Housing Tax Credit 0.90
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Permanent Tax CutsExtend Alternative Minimum Tax Patch 0.51Make Bush Income Tax Cuts Permanent 0.32Make Dividend and Capital Gains Tax Cuts Permanent 0.37Cut in Corporate Tax Rate 0.32
Spending IncreasesExtending Unemployment Insurance Benefits 1.61Temporary Federal Financing of Work-Share Programs 1.69Temporary Increase in Food Stamps 1.74General Aid to State Governments 1.41Increased Infrastructure Spending 1.57Low-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.