As Stimulus, Tax Cuts May Soon Go Awry [View All]

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As Stimulus, Tax Cuts May Soon Go Awry
http://www.nytimes.com/2003/11/30/business/yourmoney/30view.html
By LOUIS UCHITELLE -- Published: November 30, 2003

LAUDING the Bush tax cuts isn't easy. They have turned a comfortable budget surplus into a constraining deficit, and they are enriching the wealthy far more than families with only five-figure incomes.

The one mitigating factor is stimulus. The tax cuts are helping to revive the economy by putting more spending money into people's pockets. But even that will soon backfire.

The stimulus is at its peak right now. During the fiscal year that ended on Sept. 30, the nation's taxpayers pocketed $117 billion, mainly from rebates and from reductions in paycheck withholding as lower tax rates went into effect. That $117 billion, which is the portion of the tax cut going only to individuals and not to companies, rises to $200 billion in the current fiscal year, the Congressional Budget Office reports.

Most of the windfall from both fiscal years is packed into the 12 months that started last summer and will end next summer. Not surprisingly, this front-loading of the tax cuts coincides with the improving economy. But then the payout declines gradually, snuffing out the stimulus - unless there is another big tax cut. Or as Chris Varvares, president of Macroeconomic Advisers, put it, "We have reduced the scope of using fiscal policy to cushion the economy in the next downturn.''