Will Bush's Tax Cuts Prevent a Recession?

Lately we have been hearing a lot about a possible recession. In this article I will analyze Bush current plan to avoid a recession and stimulate the economy.

Bush's current plan to boost the economy is to offer tax cuts to Americans who pay federal income taxes. President Bush feels that this extra money will stimulate the economy because people will take this money and spend it. Now to most people this sounds great. Who wouldn't want extra money in their pockets, but many economists disagree. Many economists believe that for every dollar the government gives away in tax cuts only .75 of that dollar will go into the economy. On the other hand, for every dollar the government spends $4 goes into the economy.

There are many reasons for this. One is what people will do with the money. Many people will take the extra money and put it into their savings or use it to pay off their debts. The reason for this is that people become more careful during recessions. They don't want to spend money instead they want to save money in case they lose their job. During the 2004 tax cuts most people used their tax rebate to pay off their credit card debt.

On the other hand, government spending puts money directly into the economy. This money goes directly into businesses. These businesses are now encouraged to buy materials to make more products and to hire workers-or keep workers working. These workers get paid and they can continue buying things for their families. What is important is that the spending be on domestic projects.

Of course this spending must be domestic spending. Military spending like money spent on the war in Iraq does not help to stimulate the business cycle in the US. This money may help stimulate foreign economies.