Interest Rates

• Some elements of economic stimulus programs are controlled by the Federal Reserve, which regulates interest rates. In order to maintain a stimulus plan, the Fed typically keeps interest rates as low as possible. The lower the interest rates, the more borrowing that takes place. When borrowing occurs, this usually means financial movement in an economy.
  
  

Tax Refunds

• An area where federal taxes are used to create a stimulus is through refunds. When the government refunds tax money back to the public, the plan is for the recipients of the tax refund to spend that money within the economy. The refund is designed to prime the economic engine of the country, getting people to put money into circulation. Naturally, if a person owes money in taxes, he isn't going to see any of the stimulus money going into his pocket.
  
  

Circulation

• Even though a stimulus isn't controlled by federal taxes, providing tax money back to the public can be effective. However, that effectiveness only comes into play if the money is put back into circulation. If the money is put into savings, the effect of stimulation will be very slight. During the Great Depression, one of the ways that federal taxes were used to create economic stimulus was by setting up "work programs" designed to get people doing government service in exchange for getting paid. By itself, though, the federal tax system cannot actually create economic stimulus.
  
  

Payroll Taxes

• An area where federal taxes contribute to economic stimulus is in making sure that the rates are low enough for the public to feel secure about the economy. If a person has more money to spend when taxes are taken out, he can spend that money and put it back into circulation. In 2011, one of the ways to help with the economic stimulus was in the form of a year-long payroll tax holiday. Under the terms of this federal stimulus program, employees would only have to contribute 4 percent of their wages into the Social Security and Medicare programs as opposed to the regular 6 percent. This additional money was designed to be put back into businesses and services. In turn, the businesses and services would hire more people to assist during busy hours.