Among the different policy prescriptions economists are batting about at the American Economic Association in San Francisco, one that’s been causing a buzz is cutting states’ sales taxes.

Husband-and-wife team Robert Hall of Stanford and Susan Woodward of Sandhill Econometrics have been touting the idea, but it’s gathered other adherents, including Princeton’s Alan Blinder. The idea, in a nutshell, is to cut sales taxes and then compensate states for their lost revenue. This gets people spending, rather than saving like they’ve done with tax rebates. And it hits the economy way faster than stuff like infrastructure spending. Or at least that’s the theory.( I AGREE )

The notion it would work is built on the observation of what’s happened when countries have raise the sales tax, and spending got badly hurt. The most recent example is Japan, where an economic recovery in the mid 1990s got snuffe by a tax increase. So why not put what happened ther into reverse?

For the plan to work, it would have to be put into effect almost as soon as it was announced, because otherwise people would hold back on spending while waiting for the sales-tax holiday to go into effect. The plan would also have to be phased out gradually after the economy regained its footing, because putting sales taxes up to their old levels all at once could kill the recovery.( THE POINT TO PHASING IT OUT IS ALSO TO MAKE IT AN INCENTIVE TO SPEND BEFORE IT DOES. IN OTHER WORDS, IT'S AN INCENTIVE TO SPEND THE MONEY NOW. )

Five smaller states don’t have sales tax and other states have low tax rates compared to the rest. To keep things fair (and to keep the plan politically viable) those states would have to be compensated in other ways.

Is there any chance the Obama administration would consider the sales tax plan?( YES PLEASE ) The original idea comes from work a young Harvard economist did in the 1980s. His name? Lawrence Summers. – Justin Lahart"