As Stimulus, Tax Cuts May Soon Go Awry

Most of the windfall from both fiscal years is packed into the 12 months that started last summer and will end next summer. Not surprisingly, this front-loading of the tax cuts coincides with the improving economy. But then the payout declines gradually, snuffing out the stimulus - unless there is another big tax cut.

A big chunk of the $200 billion will come to people as tax refund checks in the next six months - a timely shot in the arm in a presidential election year. Then the shrinking begins as the tax cuts run their course. For fiscal 2005, which starts next Oct. 1, just a month before the election, the tax windfall for individuals will total only $168 billion.

The $117 billion in fiscal 2003 gives birth to only $40 billion in effective stimulus. Much more of the cuts, perhaps every nickel, would have been spent if the money had been channeled to the states instead, to pay the salaries of teachers who were fired to balance budgets. The economy surged in the third quarter, but as Mr. Slemrod notes, "the tax cuts were not a major part of that growth.''