Capital Commerce

Go Ahead, Save Your Tax Cut

January 12, 2009 RSS Feed Print

Michael Mandel likes the idea of cutting taxes for individuals:

But this conventional argument misses the whole point. Consumers have a massive hole in their balance sheets these days. Home prices are plunging, incomes are slowing, and many families have huge debts. Americans are staggering.

From this perspective, the main purpose of the tax cuts and tax credits is to help repair consumer balance sheets, just like the TARP is helping repair bank balance sheets. I don’t want consumers to spend the tax cuts—I want them to save the money, as much as possible, and get their debt back to reasonable levels. That’s the only to ensure that consumers will be on solid ground when the recession is finally over.

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That is the best rationale I have heard for a broad-based tax cut. Banks (lenders) had poor balance sheets so the government injected equity capital. Many citizens(borrowers) need the same deal so the banks will actually lend to us! As much as I dislike it, I think an auto tax credit could also help with slumping auto sales. I think financing trouble may be cutting sales instead of demand. Anecdotally from Upstate New York, the Sunday Times Union interviewed a car salesman who complained of most of his potential sales dying due to unavailable financing.

Joe of NY 6:39PM January 12, 2009

Go Ahead, Save Your Tax Cut

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