The problem we face is that there isn't a clear answer. Which answer works? Answering that is similar to asking if a volcanic eruption in Africa will affect the weather in Asia. The answer...we don't really know. Like the weather the economy is a very complex system and while we are fairly good at prediction both in short time periods, it is far more difficult to point to specific actions and accurately predict their results. It is sadly, also very difficult to look back into the past and knowing the result point to what was the primary cause. There are simply too many factors which have too many effects for us to track.
In theory we should be able to look at a hurricane and trace all of the weather patterns back to determine what were the primary causes and use that information to accurately predict them in the future (or possibly to either create them or prevent their formation). In practice, there is too much information and we have to use computer models which necessarily simplify many factors based on our understanding of how important they are. This causes our models to be only somewhat accurate and reliable at even predicting what is going to happen, which makes it very difficult to point to how. The economy is much the same. There are several schools of thought because we cannot model the system accurately enough to determine even the causes of why things happened in the past. That, however, doesn't stop people from having beliefs and opinions.
That said, let's look at the two solutions above.
The idea behind a government spending stimulus is that the government can step in and provide demand for goods and/or services which will stimulate businesses to meet that demand. As businesses expand to meet the new demand, they stimulate the general economy as all business growth does (job creation, innovation, etc.) This temporary demand can either hold the economy steady through a recession or even eliminate the recession and restore healthy economic growth. Or at least, that is the theory. Does it really work? We don't know. And we don't know because there are other factors that come into play when you take such an action and those factors can also have a significant impact on the economy.
To look at just one of these factors, consider where the money spent on the stimulus comes from. Government spending on a significant enough scale to increase demand will also impact the economy in other ways. If the money is borrowed (as it has been with our current stimulus) it will reduce capital available to businesses, as the government is either borrowing more and competing with businesses for credit, or it is lending less and therefore not providing as many loans to businesses. To avoid reducing capital availability you could alternatively increase taxes, tariffs, or other sources of government revenue, but they all have drawbacks as well. Increasing taxes reduces profitability for businesses which can lead to either stagnant growth or price increases. Increasing tariffs can cause reprisal increases on US goods which would also lead to reduced revenues. Is this negative effect enough to overcome the positive effect of the stimulus. Probably not, but is only one factor. There are a host of other factors, both positive and negative and there are certainly many that I am not aware of. On the balance it is difficult to know if it will be successful or not.
The tax cut plan has similar difficulties. It is certainly true that by decreasing taxes you will provide more capital to business through private investors and you increase business revenues by reducing their tax burden. At the same time you are reducing government revenues which will decrease government created demand which affects overall demand and can cause a stagnating effect. You also increase consumer demand since a tax reduction provides more revenue to people. On the other hand, making any changes to the tax codes can cause a vast number of unintended consequences as you are altering a system that has been tailors over the years to promote or discourage various financial practices. As with the spending plan, the complexity grows over many factors very quickly.
Is it possible to add all of these factors up for each side and determine which course is better, or perhaps if there is a better course of action? Someday, perhaps. But right now, if it were possible to model the economy with that precision, we would not have the debates and arguments we currently have.
Yet, at the same time, how often are we just supporting the practice we prefer and justifying our belief by focusing on the positive indicators that do exits in our preferred plan? Increased government spending helps to promote and support many other things that Democrats want to support. It shifts power away from wealthy corporations and individuals and into a government which they can hold more directly accountable for their actions. Tax reductions, on the other hand, align more with the values of the Republican party, by pulling power away from government agencies and administrators who are often not directly affected by their decisions and actions.
Personally, I do believe more in the tax cut plan than I do in the stimulus, but only to a limited extent and not for any of the reasons outlined so far in this post. Part of my support probably comes from my desire for a smaller, less powerful government, but more of it has to do with what I believe is a better path to finding the optimal solution to a problem. That, however, is another post and one that I promise will appear soon.
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