Tax cuts may work better than spending to stimulate the economy

Washington Post – Stimulus Projects May Be Slow, CBO Says:

Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.

A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended.

Unlike government spending, a broad tax cut would have immediate benefits to the economy.

A tax cut also wouldn’t be subject to bureaucratic waste or political corruption and cronyism. Witness what happened in Iraq and post-Katrina New Orleans. When progress didn’t proceed according to some people’s schedules there were calls to remove bureaucratic red tape and spend the money faster. That was followed by questions about how the money was spent and why there wasn’t more accountability. The more mad the rush to spend money, the more of it that gets wasted.

Here’s a roundup of stimulus skepticism. Arnold Kling raises excellent points and that last one is why government payrolls keep growing and growing:

[T]he risks of a large stimulus, compared with a small stimulus are:
1. It is harder to spend larger amounts quickly and cost-effectively.
2. There is a greater risk that we will run into a “sudden stop,” in which foreign investors are no longer willing to fund our deficits (this is Buiter’s main worry).
3. There is a risk that the intergenerational transfer imposed by the stimulus (from our children to ourselves) is excessive, particularly in the context of other intergenerational transfers of the same sort.
4. There is a risk that fiscal stimulus, large or small, is actually ineffective, so that a large stimulus only means a large failure.
5. There is a risk that much of the spending will kick in after a recovery is underway.
6. The government’s capacity to deal with an emergency, such as a major natural disaster or a foreign attack, will be limited, because its credit worthiness will be damaged.
7. There is a risk that government will absorb a permanently higher share of GDP. Policymakers will be reluctant to cut public spending for fear of causing a downturn. Moreover, it will be difficult politically to cut public sending.

Reducing taxes rather than spending more would also mitigate that last point. We have plenty of government already, to the point that more people now work for the government than work in manufacturing.