Spending Better Than Tax Cuts In Jump-starting Employment

Conservative assertions that tax cuts are more effective and efficient in promoting employment growth during a recession defy basic generally accepted economic understanding as well as common sense. A yardstick known as "Okun's Law" by economists suggests that a 2 percent increase in gross domestic product leads to a 1 percent decrease in unemployment. The Center for Economic and Policy Research estimates that about $100 billion in government spending would lead to a 1 percent increase in GDP and a 0.5 percent drop in unemployment, or 1 million new jobs. But $100 billion in corporate tax cuts would lead to only a 0.2 percent increase in GDP and only 200,000 new jobs. The proceeds from corporate tax cuts could be used in a number of ways that don't produce jobs—stock buybacks, higher shareholder dividends, or overseas investments. But government purchases of goods and services directly translate into saved or created jobs, and that in turn creates a multiplier effect through the economy.