It is often said that tax cuts help the economy because the taxpayer spends the money. I do not see how that works.
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.)