Tax Cuts Should Boost Private Savings
Anyway, if (with emphasis on "if") we are to have some kind of Keynesian "stimulus", then tax cuts are preferable to active efforts to achieve monetary inflation and spending increases. That is because first of all, tax cuts (at least genuine ones) improve incentives for productive efforts. And secondly, because they leave the decision of ultimate spending to private households, in sharp contrast to direct government spending (though this is also true of government transfer payments).
I now see that Harvard economics professor Ed Glaeser also favors tax cuts as the preferred method of stimulus. However, he appears to favor targeted tax cuts just for low income earners, because they are more willing to spend it, similar to the plan Obama presented during the campaign.
There are two problems with this: first of all, if you phase out tax cuts with rising income, you increase the marginal rate of taxation and so reduce incentives for productive efforts. And secondly, higher private savings is not a bad thing. Indeed, a key problem in the U.S. economy is that household savings remain too low and household debt remains too high. By boosting private savings and enabling a reduction in the level of private debt, firms will feel safer that households will be able and willing to buy their products in the future and so increase investments.
The large deficits that this plan presupposse will of course counteract this effect, as the fear of future tax increases will limit investment spending, which is why it is not a cure per se. But at least the negative effects of the deficit will be counteracted by the positive higher private savings. If the deficit is used for spending by contrast, the effect will be lower long term investment and so lower long term growth.
So, while "socializing" debt by increasing private savings through higher government deficits may not solve the problems, at least it won't aggravate them. If by contrast the deficit is used for spending, the problem with a too low savings rate will only be aggravated.