A tax cut for working Americans will boost incentives to save, work and invest. It'll also help lower capital costs, which will boost business spending and investment. And that in turn will revive job growth that has slowed to a trickle.

Fiscal Policy: Suddenly, the economy looks a bit sickly. Friday's jobs report, showing far weaker growth than expected and a surge in unemployment, was a case in point. America needs another tax cut, and fast.

Payroll growth was a measly 18,000 vs. 70,000 expected by Wall Street economists. This, the Bureau of Labor Statistics tells us, is "basically unchanged" and the smallest gain in four years. Worse, the unemployment rate jumped to a two-year high of 5% from 4.7% -- a sign there's been a big change in the tone of the job market.

From the nearby chart you see that the job market on a year-over-year basis is barely growing at all. In fact, year-over-year job growth is now below 1%, a level often seen just before a recession starts.

This matches quite closely the definition of a "growth recession." Yes, the economy is still expanding, though somewhat more slowly. But it isn't churning out enough jobs to sop up the 150,000 new entrants into the job market each month. That's bad news.

The employment report wasn't the only sign that last year's housing crash and credit crunch are taking a toll. Stock indexes have been wobbly for weeks. Meanwhile, the yield spread between Baa and Aaa corporate bonds -- a normally reliable indicator of financial distress for U.S. companies -- has soared to a recessionary 120 basis points, up nearly 50% from its usual level.

While some of the economy's underpinnings -- income growth, factory output, trade, nondefense capital goods orders -- remain solid, things at the margin seem to be crumbling. Time to take action, or regret it later.

Those counting on the Federal Reserve to do all the heavy lifting are mistaken. Since August the Fed has cut its benchmark fed funds rate a full percentage point 15 4.25%. That's a good shot in the arm for the economy that should kick in six months to a year from now.

But the Fed's job is complicated by its fear of inflation and now by worries over the collapse of the subprime lending market and the credit crunch it has created.

We can't count on the Fed to cut rates fast enough to keep the economy going. We need to cut taxes, and soon.

Rumor has it that President Bush will announce a new tax-cut plan in his State of the Union address later this month. It would be a wise move -- just as it was wise to cut taxes in 2001.

He can start with fixing the Alternative Minimum Tax. It was supposed to hit millionaires only, but without congressional action it will reach into the pockets of 20 million middle-class Americans. The tax cuts that were enacted from 2001 through 2003 can also be made permanent.

Corporations can also use some relief. The U.S. corporate tax, which stood at 39.3%, is second-highest among the 26 rich nations that belong to the Organization for Economic Cooperation and Development.

Those who say we "can't afford" to cut taxes further are wrong. Federal taxes chew up about 18.5% of all economic activity -- above the long-term average of 18%. The budget deficit has been shrinking for four years and is now a negligible 1.6% of GDP. But it will swell again if we go into recession.

The average household in the top 20th percentile of income -- or all those earning above $100,000 -- now pays $57,512 in federal taxes each year, according to the Tax Foundation. That's too much.

Critics who say tax cuts will "reward" the rich know that's nonsense. In 1990, the richest 5% of Americans earned 27% of all income but paid 44% of all taxes; today, they earn 36% of income, but pay 60% of the taxes. It's a fact that after the tax cuts made by both President Reagan and President Bush, the U.S. tax system became more progressive, not less.