Tax Cuts, Not Unemployment Benefits, Would Stimulate The Economy — And Cost Less

Economist Arthur Laffer wrote on the opinion page of last Thursday’s Wall Street Journal that extending unemployment benefits will lead to more unemployment. These two sentences say it all: “Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we’d have a heck of a lot more unemployment.”

Of course higher unemployment benefits make unemployment less unattractive, which is why “since the 1970s there’s been a close correlation between increased unemployment benefits and an increase in the unemployment rate.”

He explains that unemployment benefits are not stimulus: “The government doesn’t create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.” Oh, what fresh air we have here. “Quite simply,” he writes, “there is no stimulus from higher unemployment benefits” because while “the unemployed may spend more” from their benefits, “those people from whom the resources are taken will spend less.”

His concluding paragraph may bring you to your feet. I’m warning you in advance so you can make sure there are no obstructions behind your chair. Here it is:

My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?

Once you’re sitting down again, consider reading the whole piece.

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4 Comments

  1. Daniel
    Posted July 12, 2010 at 11:02 pm | Permalink

    I like the idea, but of course (and sadly) it would never have politically survived. How about a permanent removal of personal income taxes instead? This would at least (in theory) focus our culture on saving instead of spending into oblivion. And if not, consumers would spend more anyway, which would support a healthier economy. The personal income tax is such a crock.

    • CHRIS - DENVER, CO
      Posted July 13, 2010 at 1:31 am | Permalink

      I like the FairTax.org idea myself.
      -Chris M

  2. T-Mo
    Posted July 14, 2010 at 3:09 am | Permalink

    Sadly, the facts don’t support the conclusion here. Did he even use any facts?
    http://www.thenextright.com/mead50/spending-vs-tax-cuts-bang-for-the-buck

  3. Posted July 19, 2010 at 3:30 am | Permalink

    Well, there they go again–with that disastrous failure of an economic plan–“Trickle Down.”

    After watching this plan increase the deficit for most of 30 years, one would think that impatient Americans would have given up on the whole scam. Is there anyone who does not know that the vast majority of industrial investment goes not to the US, but third world countries? Why is it that tax cuts cannot just go to those who invest at home?–If creating jobs is the issue.

    More likely, legislators are bought off by the wealthy, disloyal, unpatriotic, greedy investors and mega-multinational corporate entities.

    Wake-up America. The money spent on the wars and the tax cuts for the wealthy would eliminate the need for many hidden, and other taxes which are regressive while paying off the debt without picking at the crumbs of programs like unemployment pay. (Like Bill Clinton and the Legislature did before). These Republicans will be happy to raise taxes on waitresses and low income people, while simultaneously giving wasted tax cuts to the wealthy international operators.

    Last but not least, unemployment is paid into by wage earners. Furthermore, one must report to the unemployment office often, (once a week where I live). At that time, applicants must have proof that they looked for work every day, and they must not turn down work they can do. I remember when we had the, “TRA”= trade readjustment act. People who lost work to foreign trade could retrain. Republicans replaced that with a little scam plan=JPTA. It started as a total farce, and slowly got some better.

    Please people, try to stop sucking-up by listening to Rush with your boss at work. (I am reminded of when the Soviets gave workers a “Marx break”). Try to pretend that you are not a mentally retarded ditto head.

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