Former Bush economic adviser Larry Lindsey has an intriguing stimulus/energy proposal, in which we halve the payroll tax--netting about $400 billion per year--then, once the economy's recovered, make up the lost revenue with a greenhouse emissions tax. I like the idea a lot. In the short-term, it efficiently gets money to people who need it and will spend it. Over the long-term, it discourages energy consumption in a fairly non-regressive way, since the payroll tax cut would roughly offset the energy tax increase for working-class people.
The only catch is that, en route to making his case, Lindsey tacks on the following idea:
The relative advantage of tax cuts over spending is even clearer when the recession is centered on the household balance sheet. Some relatively minor changes, like making the current 15 percent tax rate on dividends and capital gains permanent, would not only help household cash flow, but also put a floor under equity prices much as their introduction did in 2003. This would help protect against further wealth destruction and balance sheet deterioration.
It's possible that I'm missing something here, but I don't understand how making the 15 percent tax rate on dividend income and capital gains permanent is supposed to help households during the recession. Even if Obama doesn't make those rates permanent, they're almost certainly going to stay at their current levels through next year (and probably through 2010--they're not set to expire until 2011), which should, inshallah, cover the entire recession. On top of which, it's hard to imagine how a low capital gains tax helps household balance sheets at a time when almost no one is making capital gains. And, on top of that, the vast majority of capital gains taxes are paid by wealthy people, whose personal balance sheets aren't nearly as in need of repair as those of working- and middle-class people. (At least from the perspective of the macroeconomy--the latter are much more likely to rein in their spending in tough times.)
It's an especially weird proposal for Lindsey to make immediately after criticizing federal aid to states on the grounds that "states and localities will simply substitute federal funds for their own resources." Even if you think aid to states wouldn't net households much additional cash (and Lindsey seems way too pessimistic on this point), it would certainly net them more than his capital gains tax proposal, which wouldn't net them any additional cash.
--Noam Scheiber