As for Krugman, if a government dollar spent gets recycled, what happens to that tax cut dollar? There was a very good article by Robert Barro in the WSJ 3 or 4 weeks ago that calculated the multiplier of government spending to be approximately 0.0 (I think). One of the posters makes the point that his business can't take advantage of tax cuts now because the economy is so bad; my industry could still turn reduced taxes into increased employment. Tax cuts translate to almost immediate job creation in my industry, which would create disposable income immediately, which would be recycled just as well as, if not better than, Krugman's dollar spent.

As Mr. Fox indicates, the question is not that simple. I too like the idea of a little of each.

Anyway, the tax cut vs. spending question is largely irrelevant. The cause of the problem is the banking system breakdown and if we don't fix that the structure of the stimulus package won't matter. Obama and the Dems successfully blamed that 100% on Bush and the Republicans, which is totally ridiculous. Of course it is partly their fault, but that problem also belongs to Bill Clinton, Barney Frank, and the Dems. At the rate we're going, we're going to learn the wrong lessons, fix the wrong problems, and apply the wrong solutions because that's how we play politics these days.

So at first glance, a tax cut for consumers seems like a great idea. However, consumers seem to have figured out that they've been spending too much and saving too little in the last two decades. In with the current climate, I suspect they'd use the extra cash to pay off debts, or build their savings. (I know I'd just save more.) Giving tax cuts to consumers at the lowest income levels might be a good idea, since they're more likely to actually spend the cash. Of course, they won't be buying any new cars, appliances, boats, etc.

While tax cuts seem like a good idea, I have a hard time working out a mechanism whereby they can lead to job creation - at least without some substantial amount of concurrent government spending.

I have a problem with this at a time when the government is running massive deficits. the simple fact is that there is a source for an enormous amount of capital available at all times for "more productive uses".

Tax cuts, especially those that go in upper income levels, aren't applied to "more productive uses", rather they wind up simply inflating the value of pre-existing stocks and other investment instruments. Businesses DO NOT decide to create more jobs because they have more cash on hand -- they decide to create more jobs because they see an opportunity to sell more goods/services, and hire people in order to create those goods/provide those services. new jobs are created when demand for goods and services increases, and giving tax breaks for "job creating capital formation" doesn't work in the real world.
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We've seen this over and over -- not just with tax cuts for the rich, but with the Fed cutting interest rates to inject capital into the market -- Greenspan's "panic" rate cut didn't do a damn thing to stop the 2001 recession, because inventories were way too high, and productive capacity was sufficient to meet demand, so nobody was going to borrow money to create more capacity.
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While there does come a point where interest rates are too high, just as extremely high tax rates can prevent "job creating" capital formation. But those effects occur only in the more extreme cases -- when the P/E ratio on stocks and corporate bonds is significantly less than what you can get from the bank, then you need to reduce interest rates. But the last time that was going on was a couple of decades ago....