Positive Effects of Bottom-Up, Demand-Side, Consumer Tax Cuts
Consumer spending makes up about 70% of the US Economy.
On April 1, 2009, low- and middle-income workers started seeing a bit more in their paychecks, thanks to the “Making Work Pay” tax credit in the federal recovery act. The tax credit is 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers. The benefit will generally be spread out over the paychecks workers started receiving in spring 2009 and will continue until the end of 2010.
Tens of billions of dollars have been pumped back into the economy through this bottom-up tax cut. Positive economic indicators have followed:
After at least a 3 year decline, Consumer Spending began to rise in April of 2009.
After a 5 year decline, GDP began to rise in April of 2009.
After a 2 year decline, the Leading Economic Index began to rise in April of 2009,
and is currently higher than at any time in over 4 years.
Historically, the LEI is one of the most reliable forward indicators that exists.
After a dramatic 1 year increase, Job losses began shrinking in April of 2009. This has been the most rapid turn from net jobs losses to net jobs gains of any business cycle in the last century.
From its low on March 9th, 2009, the current S&P recovery began to rise in April of 2009 and has outperformed the 1974 and the 2002 rebounds over the equivalent period.
What is amazing about this is that so far only about 12% of the public think they got a tax cut. The Republicans, who all voted against this tax cut, don’t want to talk about it and they seem to be creating a
narrative that Obama and the Democrats have raised taxes.
Consumers indeed create jobs through demand for goods and services. No matter what your political persuasion, supporting tax cuts for working men and women seems wise — and the results illustrated above underscore why the tax cuts in the 2009 stimulus bill got it just right.
(hat tip Dave Rusk)
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