Tax cuts two years ago not effective in stimulating the economy

KAI RYSSDAL, anchor:

Is it tax cut deja vu all over again? Good morning. I’m Kai Ryssdal in Los Angeles.

Announcer: The MARKETPLACE MORNING REPORT is produced by Minnesota Public Radio, in association with the University of Southern California.

RYSSDAL: It’s fair bet there will be some kind of tax cut coming this year, even though Congress does still have to approve the president’s economic stimulus plan. Thing is, there were tax cuts two years ago that were supposed to get the economy going again. MARKETPLACE’s Amy Scott looked into what happened.

AMY SCOTT reporting:

In 2001, American taxpayers got the largest tax rebate in history, about $28 billion. What’d you do with your share?

Unidentified Man: I think I deposited it in my checking account, and then continued to write checks.

SCOTT: But Joel Friedman at the Center on Budget & Policy Priorities points out 34 million Americans didn’t get any rebates because they didn’t earn enough to owe taxes, and those are the people, he says, mostly likely to put that money right back into the economy.

Mr. JOEL FRIEDMAN (Center on Budget & Policy Priorities): The lower-income you are, the more cash-constrained you’re going to be, and therefore, if you get an extra dollar, you’re going to be more likely to spend it.

SCOTT: Even proponents of tax cuts question the stimulating effect of rebates, like Wayne Brough at Citizens for a Sound Economy.

Mr. WAYNE BROUGH (Citizens for a Sound Economy): If people are already strapped with debt and it’s a small, one-time rebate, there’s a lot of evidence that suggests that people use that to pay down debt.

SCOTT: Seventy-five percent of those who got a rebate last time put it towards debt or savings; only a quarter actually spent the money. In Washington, I’m Amy Scott for MARKETPLACE.

LOAD-DATE: March 18, 2003