I like to use the analogy of money being like blood. Money flowing through the economy is like blood flowing through your body. If blood doesn't flow to a certain part of your body, that part gets sick (gangrene) and soon will have to be removed. If blood "pools" somewhere in your body, you get bloated there, swelling, etc. Money, like blood, is generally of a finite amount.

Right now, there is a huge pooling of money in the energy and defense industries. The pooling is to the point that the rest of the economy does not get enough money to keep it healthy. You can see that in the way prices are going up radically because those areas are starved for money to keep them alive. ONe way the economy tried to get the money it needed was through cheap credit. Another way was through credit cards and home equity loans. Now, those are collapsing because the economy could not be sustained artificially that way. The tax rebates are intended to redirect some money to other areas of the economy. Or, said another way, the tax rebates are intended to redirect more "blood" to other areas of the economy that are starved for money.

The tax cuts have served their likely purpose of extra money available for defense and energy. IN the short term, I think the sudden cutting off of the defense industry through pulling out of Iraq and raising taxes back to pre-Bush rates would shock the economy probably the rest of the way into a depression much like the way the economy crashed during Jimmy Carter. No one ever writes about it, but I feel that after being in a wartime economy since 1942, the end of the VietNam war and a wartime economy caused a collapse of many systems within the economy that relied on that money flowing into them while Carter was president. (I think that would have happened to Ford or Carter regardless of who was president. It was going to happen once we wound down from VietNam.) Although I would like to see us out of Iraq now, and I've voiced that many times, I think a gradual withdrawal would be best.

Long term, more money becomes available for those other areas that need the money flowing into them and the economy recovers. Bringing back jobs that have been shipped overseas through tax incentives would bolster our economy even more with more money flowing through the economy domestically rather than being sent overseas. That brings up the issue of the trade deficit which is a hemorrhage for the economy, but that is another topic, albeit a related topic.