In the fall of 2007, when the U.S. economy first seemed in peril, I began answering reader queries here on the Business Desk. I still do so occasionally, but this page has expanded to include posts from eminent economists, "far-flung correspondents," and a variety of voices that have intriguing and/or useful things to say about economics, broadly defined. Please feel encouraged to respond to any and all of them.
It is often said that tax cuts help the economy because the taxpayer spends the money. I do not see how that works.
City & State:
New York, N.Y.
Question/Comment: It is often said that tax cuts help the economy because the taxpayer spends the money. I do not see how that works. After all, the government spends money, too. So what does it matter who spends the money?
Paul Solman: The classic economics answer: People spend their money in the ways that maximize their welfare. If government takes and spends some of that money, it won't do as good a job.
Think of Christmas gifts. Or better, wedding presents. People buy stuff for you. Wouldn't you be able to get more bang for their bucks if you spent the money yourself? (Plus, in the case of government, it costs them money to take the money from you.)