The Classic Dilemma: Stimulus or a Tax Cut? Keynes or the Supply Siders?

Sometime late next January there will be a decree from the White House and a (very
short) debate in Congress as to whether a stimulus package exceeding one trillion dollars will be sufficient to revive a faltering economy. Doing nothing is, of course, not an option because, as Rahm Emanuel has admitted, a crisis is a terrible thing to waste. What will not happen, unless Republicans force the issue with the only legislative weapon in their bag (filibuster), is a thorough debate on what is the best path: stimulus spending or tax cuts.

During 1982-1983, Ronald Reagan, along with a new class of Republican congressmen and some boll weevil Democrats passed historic tax reductions that led the nation’s economy out of one of the worst recessions in recent history. Federal tax receipts soared. Again in 2002 President Bush led the nation out of a severe post 9/11 and post dot com bubble recession with a new series of tax cuts.

The economy is in even greater peril today so one might surmise that Congress is readying another round of tax cuts to spur growth, right? Wrong. Why is this important? Because it plays into one of the most significant economic fiscal policy issues that will be addressed by the Obama/Pelosi/Reid administration next January. That not one of these party leaders is even considering a similar broad based tax cut is both reprehensible and a breathtaking display of institutional arrogance and ignorance of the very fiscal policy (reducing the highest marginal tax rates) that created the trillions of private wealth politicians so casually confiscate and spend.

After having squandered the opportunity they won in 1994 Republicans are many elections away from the majority they will need to enact responsible fiscal policy. During this time in the political wilderness they must use the only tool they have, the filibuster, to demonstrate to the electorate that only supply side fiscal policy creates wealth.

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Cheney says he's changed