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Should the Government Spend or Give Out Tax Cuts?

Business for sale in UK; photo by Caro's Lines, via Flickr

Editor’s Note: Paul recently answered “Five Good Questions” on the economy for the PBS Engage blog. You will also be able to find those answers here on the Business Desk all week.

Question/Comment: There seems to be two dominant strategies to getting us out of this recession. One is heavy government spending that will improve GDP since business investment and exports seem to be waning. The other is to reduce taxes on businesses so that business costs will decrease on the tax liability side which should increase investment to create more jobs. It seems to me that the latter option is the wrong solution since business taxes are quite low going into this recession and that cutting them more would do little to spur investment considering consumer confidence is the big issue right now and business tax cuts will only help profit margins instead of create additional job growth. Granted the economic issue is much more complex than I have stated it here but what are your thoughts on these two approaches? – Christopher

Paul Solman: Well, the economic issue can be MADE more complex than you have stated it, but you cut to the core. The key question: Will spending get us back up and running (or at least jogging) quicker than tax cuts? A second question: which will confer the most enduring benefits?

Right now, the split on both questions is along the traditional political fault line. Republicans like tax cuts. Democrats like spending. They can each martial evidence to support their points of view. But the fundamental impulses are ideological. Republican ideology tilts toward markets, individual decision-making and “efficiency.” Democrats tilt toward policy, collective decision-making and “fairness.” Where one aligns oneself tends to be more an act of faith than of data.