Return on Government Investment: Key Programs Come Out On Top!
As we discussed our recent “Don’t Fall for the Fiscal Cliff Rhetoric” blog post, misinformation and misperceptions on federal spending, tax policy, and their impact on the economy abound. As the end of the year tax and budget battles approach, I thought I’d take the time to look back at the facts — “What gives us the biggest bang for our government buck?”
Despite claims to the contrary, anti-poverty programs not only reduce hardship for struggling families, they also stimulate the economy. For example, it’s been long known that the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) generates around $1.79 in economic activity for every government dollar spent. Mark Zandi of Moody Analytics estimated that a temporary increase in food stamps would have a similar payoff of $1.71 for each dollar. In other words, for every dollar a family on SNAP spends, we get nearly twice that much in economic activity. That’s a pretty good payoff to me! That’s why investing in anti-poverty programs makes economic sense; by putting recourses in the hands of those who need it most, those dollars will be spent pretty quickly and ripple throughout the local economy (SNAP money goes to the grocer who has money to buy food from the farmer and pays her employees, who in turn go out and spend their income, and so on).
Similarly, the Earned Income Tax Credit, depending on the location, can generate anywhere from $1.50 to $2.00 in local economic activity. This is part of the reason why there has been such strong showing of support from local governments for the EITC and CTC.
So, how do other policy proposals in the table match up? Mark Zandi responded to this same question during testimony back in February before the Congressional Joint Economic Committee. Unlike SNAP or the EITC or unemployment insurance, extending tax cuts for the wealthy don’t produce nearly the economic benefit that anti-poverty programs generate. Zandi calculated that for each dollar of revenue lost by making permanent the reduced tax rate on capital gains and dividends, which overwhelmingly benefit the wealthy, we get about 39 cents of economic activity generated. And a cut in the corporate tax rate would only generate 30 cents! In other words, from an economic impact point of view, when we invest in tax cuts for the wealthy over investments in working families, we lose money.
As the end of year approaches and the expiring Bush tax cuts loom large, it’s important to remember that the choices have consequences. And Congress must be reminded of its responsibility to make the best choice for all of us — invest in families and communities or enact more tax cuts for those who don’t need them.