Sunday, September 26, 2010

Thaler on Income Inequality and the Bush Tax Cuts

Richard Thaler, Professor of Economics and Behavior Science at the University of Chicago, has an excellent column in this morning's New York Times (here) explaining why it makes sense to let the Bush tax cuts expire for wealthier Americans. The one issue he neglects is the anti-stimulus effect of that policy. I've seen arguments on both sides of that one. Some argue that tax cuts for the wealthy have the least stimulative effect (see here and here). Others argue that they have the most stimulative effect because they lead to job creation (see here). My own sense is that extending the tax cuts for the wealthy would not lead to as much additional spending, dollar for dollar, as tax cuts for the middle class and the working poor.

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