Did tax cuts help the US recover?- (05.04.02)

J.T. Young, a deputy assistant at the US Department of Treasury claimed this week that tax cuts work. This was in the context that the US economy had been slowing down since the summer of 2000 and that the recovery had actually begun before September 11th came along because of the $36 billion of tax refunds given direct to taxpayers.

This seems merely a way of justifying the worrying budget defecit that the US government is running. Tax cuts do have a role in adjusting the economy to external shocks and therefore must have limited the immediate effect of September 11th. In truth however the price to pay in terms of an increased defecit is likely to have a negative effect on the US economy in the medium term. Whilst consumer confidence has returned, this was always likely as time passed anyway to an event which has little long term domestic economic impact.