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Killing the tax cut vampire

As lawmakers in the U.S. and Canada are developing urgently needed fiscal stimulus packages, the IMF now says that "infrastructure investment will have far more impact than tax cuts for governments trying to boost economic growth in the face of the global recession," the Financial Times reports:

"Estimates of the so-called "fiscal multipliers" -- the eventual effect on gross domestic product of a given tax cut or increase in government spending -- showed that infrastructure investment would add between 0.5 per cent and 1.8 per cent to output per 1 per cent of GDP spent by government.

"Tax cuts of equivalent size would add 0.3 per cent to 0.6 per cent, it said."

Yet much of the mainstream political debate in Canada and the U.S. treats tax cuts and infrastructure spending as equivalent in effect as stimuli. And right-wing politicians are using the opportunity to bundle in tax cuts that will be hard to roll back in the future, to create structural deficits that will justify more spending cuts down the road. This despite the tremendous infrastructure deficits in the U.S. and Canada which have a negative and, over time, compounded effect on production. 

Part of why the tax cuts proponents still have credibility is that at the political level, there is no oppositional voice that is clearly anti-neoliberal in either country.  Who will drive a stake in the heart of this destructive ideology?

 

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