Stimulating the Economy
The economy seems to be staggering around and politicians everywhere are eager to stimulate it back into coherence. But nothing paralyzes a business more than uncertainty about whether it its investments will earn a tidy profit or a large tax bill. Nothing frees a business more than certainty and predictability. With the Bush tax cuts set to expire soon, there's a large amount of uncertainty in the air.
Until they know who won the election, businesses may not be willing to invest in new equipment or jobs. The Independent Institute makes this point particularly well:
Even so, there is another reason that any economic benefits ultimately generated by the stimulus plan will be fleeting at best. The federal government has no means of its own, so the $168 billion needed to finance the package can come from just three sources: taxing, borrowing, or printing money. For obvious political reasons, raising taxes is not an option during the run-up to an election. The economic stimulus plan thus will be paid for through a combination of new deficit spending and currency creation. The former implies higher future taxes to pay interest to bondholders and to retire the debt when it matures; the latter adds to the inflationary pressures already evident in the economy. Both impose a heavier burden on the private sector, and auger slower rates of economic growth in the years to come.
If our elected representatives truly were interested in jumpstarting a sluggish economy, they would have acted to reduce uncertainty about future tax bills by cutting marginal income tax rates now and forevermore. Predictably, they chose political grandstanding instead.