Liberals won't back tax cuts, Ingnatieff warns PM" - Star Jan 19th.

Ignatieff is right in opposing an across-the-board tax cuts. In a time when Canadians are leveraged to excess, they are not likely to go out and spend the added income on capital goods or even added consumption goods. More likely, the money will go to pay down debt, which is good for the individual, but does little for the economy, at least in the short run. With a huge deficit planned, the money should be used on targeted areas in infrastructure projects, roads, bridges and urban transit –capital projects that will have benefits for a long time to come.

With the demand destruction we are going to have in our economy, cutting taxes and even reducing interest rates, is like pushing on a rope; it’s the wrong approach to the current situation.

Harper is a monetarist in the Friedman/Chicago school, and while monetary policy has its place, in particular where inflation is a problem, lowering interest rates when they are close to zero all ready will have little effect, at least in the short run. Cutting taxes for people who face job losses is also rather moot, and the recent US experience with a general tax cut was rather dismal.

Of course, tax cuts are popular, especially for the selfish and short-sighted, and will likely play well in an election campaign. Could it be that Mr. Harper is, again, planning a political stand-off in the parliamentary OK corral, facing off with Ingatieff in an election and dangling the carrot of tax cuts for the voters? Just a thought.