Effective tax cuts

I’ve commented recently that the Republican drive to put tax cuts into the stimulus plan is not likely to be any more effective this time than it was with the Bush “stimulus” tax rebate of last year. $15 or $20 a week less tax withholding probably will have no effect at all on most people. Even a $500 or $1000 “stimulus check” isn’t likely to have much effect – it just isn’t enough to change people’s buying habits much in this difficult economy.

But that doesn’t mean tax cuts might not help, if they were large enough and targeted to provide incentives for public behavior we would like to encourage. Here are the sorts of tax cuts that might be large enough to change behavior in ways which would help the economy:

• Offer a tax rebate for the next two years of, say, 20% up to $5000 for buying a new car that gets at least 30 Mpg (EPA rating). Then I might consider replacing my 10 year old van, and with a more fuel-efficient vehicle. Make the same offer to business fleet owners and a lot of new cars might get sold.

• Offer a tax rebate for the next two years of, say, 20% up to $5000 for replacing doors and/or windows in my house with more energy-efficient designs, or increasing the insulation in my house. Then I might consider hiring a local firm to do that.

• Offer a tax rebate for the next two years of, say 15% up to $200 for each new refrigerator, washer or dryer bought that has an energy efficiency rating greater than some (high) minimum.

• Offer a tax rebate for the next two years of, say, 20% up to $10,000 for semi-trailer drivers to replace their current diesel tractors with tractors fueled by domestic natural gas.

• Offer businesses a 10% tax rebate for teleconferencing equipment purchased and installed that might significantly cut employee travel.

• Offer airlines a tax rebate for replacing older planes with more fuel-efficient planes.

One can think of many more such “targeted” tax rebates that would encourage people to buy products, and buy them soon (hence the two year limit) and at the same time encourage changes in peoples consumption habits that would help in the longer-term.