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Senator Durbin Learns an Economic Lesson



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We all would agree that, when it comes to our current economic situation, this is no time for on-the-job training. But some lessons learned in the workplace are more important than others.

 

Senator Richard Durbin (D., Ill.), the Senate’s majority whip, seems to have edged closer to an appreciation of the type of tax relief that will actually spark economic growth and create real, private-sector jobs.

 

Last year’s tax rebate, Durbin now says, didn’t work. This bipartisan scheme operated on the theory that if Uncle Sam dropped tens of millions of checks from government helicopters to taxpayers and non-taxpayers alike, they would spend the windfall, revive consumer demand, and jumpstart an economic recovery. Unfortunately, as economist Martin Feldstein demonstrated in a Wall Street Journal editorial, Americans used about 80% of their windfall to pay off mounting credit card debts or stabilize their dwindling savings accounts. No economic recovery there.

 

The valuable lesson Durbin has taken away from this latest failed Keynesian experiment is that Americans are more likely to respond in an economically positive way to permanent tax relief, the kind that only comes from long-term reductions in marginal tax rates that taxpayers can count on. Predictable and permanent tax relief, conservatives have long held, trumps one-time windfalls every time.

 

He believes Obama’s proposed “Making Work Pay” credit, which would send targeted taxpayers up to $1,000 through reduced paycheck withholding over a period of months, would be more effective than the previous stimulus rebate checks.

 

As reported in Friday’s Congress Daily AM, Durbin said: 

“The ‘one-shot’ check in the mail didn’t work, didn’t inspire people to spend. They said ‘we better sock that away because it’s the only thing coming. Now the only question is, whatever we do on taxes, particularly for working families, should have some predictability — ‘Oh we’re going to get a check in this paycheck, and maybe the next one too. Maybe we’ll think about making a purchase that we hadn’t thought about.’”

This is encouraging. If the Senate’s second most important Democrat now favors predictable and ongoing tax relief that extends to some taxpayers over a series of pay periods, might he not be open to an even more effective approach, one that reduces the tax burden of all taxpayers for many years, or even (gasp!) permanently?

 



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