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Obama's stimulus plan seeks tax cuts

President-elect Barack Obama meets with, from left, House Minority Leader John Boehner of Ohio and House Speaker Nancy Pelosi of California at the Capitol in Washington.

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Kai Ryssdal: The Obamas officially arrived in Washington over the weekend. The girls started school today and their dad got down to work. The president-elect made the rounds on Capitol Hill today, he's trying to sell Congress on his $750 billion economic stimulus package. No guarantees, by the way, that that price tag's not going to go up some. But whatever the final number, the broad outlines, we've known for a while. The specifics, though, are starting to get interesting.

Today we learned Mr. Obama wants to spend $300 billion worth of his recession-reversing stimulus on tax cuts. That would be about 40 percent of the whole plan and a change from what we thought was going to be a focus on infrastructure. We asked our Washington Bureau Chief John Dimsdale to explain the switch.


John Dimsdale: The president-elect's economic advisers are looking at an income tax cut that would reduce paycheck withholding or provide tax credits for the working poor over a period of two years. The thinking is, that's better than the one-time tax rebate that didn't work so well last year.

Bruce Bartlett: By and large people take rebate money and save it or use it to pay down debt, which is the same thing.

Bruce Bartlett is a former Treasury Department economist.

Bartlett: If you change taxes in such a way that people get an increase in their disposable income, not just one time, but week after week after week, they're much more inclined to increase their spending level because they view their permanent income as having increased.

But Michigan University Professor Joel Slemrod isn't sure even that's enough to get consumers to open up their wallets.

Joel Slemrod: If people are in trouble now, if their assets depleted, it may be that a lot of tax cuts in the form of rebates are saved no matter whether the Congress calls them temporary or calls them permanent.

And urban policy scholar Robert Puentes at the Brookings Institution thinks we can get money circulating faster.

Robert Puentes: The one thing about infrastructure, is that we know the states will be spending it. Some additional federal help would certainly be something that they would not stick into a bank account.

But Republicans prefer tax cuts on the principle that it's better for people to decide how to spend their money.

In Washington I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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