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Obama Adviser: The Tax Cuts Make Sense

If the government wants to stimulate the economy, it's generally better off spending that money directly--on infrastructure projects, unrestricted aid to the states, or direct assistance to the financially needy--than it would be cutting taxes. That's led writers like me to question Obama's decision to include as much as $300 billion in tax cuts as part of a stimulus package that will ultimately be worth $675 to $775* total.

But those doubts are misplaced, according to a senior economic adviser who just spoke with me. The adviser argues thusly:

The spending versus taxes distinction is the wrong way to think about it. The question is at the margin. So one dollar of infrastructure is better than one dollar of tax cuts. But if you already have a hundred dollars of infrastructure then adding one dollar of infrastructure is a lot less effective than adding one dollar of tax cuts.

This adviser also emphasized the plight Obama's team faced in crafting a stimulus, one I had noted (again, echoing the likes of Paul Krugman). Spending more than a few hundred billion dollars of government money actually isn't that easy, assuming you're determined to do it in ways that will quickly stimulate economic activity.

More on this to come soon... 

*Note: In my original item, I said the Obama stimulus proposal would end up somewhere between $600 and $700 billion. The real number, I'm now told, is $675 to $775 billion--which, to be clear, is a lot of money. As I've noted previously, that ambition alone is something for which Obama deserves credit.

--Jonathan Cohn