Sorry, but tax cuts are not stimulative
Of course, all things aren't equal. If politicians are spending $10 billion on new roads and schools and suddenly decide to give a $10 billion tax break to the wealthiest 1% of Americans, then in order to achieve a balanced budget they would have to shift that $10 billion away from the roads and schools and deliver it into the well-lined pockets of their buddies in the C-suite. That would be "fiscal responsibility" in action. But it's also just a redistribution of wealth from one area of the economy to another, with no actual stimulus.
But our government doesn't work like that, and hasn't since Clinton. Instead, it delivers the tax cut and maintains the government spending, or in the case of Mr. Bush, shifts all of that government spending into a war with a country that never attacked us. In order then to finance the tax cuts our government is forced to borrow money and increase the federal budget deficit. So really tax cuts are just a back-door form of government spending.
At best economically, tax cuts are a zero sum gain, at worst a vastly inferior form of stimulus to traditional government spending. This is especially true of unfocused personal income tax cuts. Why do I say that? Because the person receiving the tax cut can spend that money on anything instead of on the places in our economy that most need the stimulus. If I give a CEO a $1 million tax break, he might buy an American-made car or a new home. But he also might buy a crack pipe or pornography or just put the money in the bank and let it sit there. Or worse, he might buy foreign-made goods that don't benefit the American economy at all. If he buys a German-made Mercedes, how is that helping the U.S.? And if he chooses to start a new business with his tax break and "create jobs," who's to say he won't open his first factory in India or China instead of here?
The fact is, government spending does stimulate the economy and in a far more effective way than personal income tax cuts ever will. Yet as the new stimulus package wends its way through Congress, our House Republican leader John Boehner claims Democrats plan to lard up the stimulus bill with spending on so-called useless social programs. The notion that social programs aren't "job creators" as the Wall Street Journal would have it is a ludicrous one.
"But they're taking my money!" the Republicans cry. How did you get to work today? Did you drive on a public road? Paid for with taxes. Who taught you how to count your money? A public school teacher? Paid for with taxes. That policeman who stopped your house from being robbed-paid for with taxes. Who are all those young men and women dying overseas in the name of your "freedom?" What pays their salaries? If taxes and government equal socialism to Republicans, then the American military is the biggest socialist institution in the history of humanity. You should think about that the next time you're waving your tiny American flags that are really made in China at the pep rallies.
If these government employees are an example of "unnecessary make work" and wasteful government spending in the view of conservatives, what do they say about "Rehab Britney Spears" dolls or Charles Manson baby doll T-Shirts? Conservatives seem to equate any product made by private industry as some sort of universal social good. But just because some fool is willing to spend $15 on a Charles Manson shirt or $5 for a pack of cigarettes doesn't mean the consumption of these goods and the jobs they create are somehow beneficial to society. How are the jobs created by the Charles Manson T-shirt or tobacco industry better than government-paid teachers and construction workers?
"But they're spending my money on the poor!" they cry. Well, you might not like helping other people and want to
keep all your money to yourself, but the fact is that social programs like welfare and Medicaid and Head Start
are economically stimulative and do create jobs. If an unemployed auto worker in Detroit receives $50 worth of food stamps and buys $50 worth of groceries at the supermarket, well that's $50 more the owner of the supermarket has in his pocket. And that supermarket owner can spend his $50 on $50 worth of gas and the gas station owner can spend it on $50 worth of cement and so on. The point is the economic multiplier effect applies just as well to social programs as it does to tax cuts.
In fact, the economic multiplier effect works better with government spending because the spending can be targeted to the areas of the economy that most need it. Instead of having income tax cut recipients potentially spend the money on Mercedes, crack pipes and porn, we can be assured that the $150 billion originally designated in the stimulus package for education would actually go towards improving our schools-something sorely needed if America is to remain competitive in the global economy. Which then adds more to our economy-a Mercedes or a person with a college education?
In fairness to the Republicans, their latest round of suggested tax cuts are not the blanket income tax ones
they've made in the past. They're targeted towards specific industries such as housing and automakers. That's an improvement, but these cuts are no more stimulative than if the government decided to give grants to these
industries or to potential home or auto buyers. And the tax cuts are less fair. They practice the same "income
redistribution" or "wealth transfer" that Republicans accuse Democratic social programs of doing except the
transfer is to wealthier citizens.
How so? Consider that the $15,000 home buyer tax credit they are proposing is really a $15,000 maximum credit depending on the cost of the home you buy and your taxable income. That means wealthier citizens who buy more expensive homes get a bigger tax credit. Or, perversely, the most wasteful irresponsible citizens who buy homes they can't afford get larger credits, encouraging the same greed which got us in the housing mess in the first place. Of course, such credits do nothing for poor or middle class renters who can't afford homes. They will be the ones subsidizing it.
Still, that home tax credit is a vast improvement over the Bush-era income tax cuts. Those were the ultimate
socialism for the rich. The income redistribution to the wealthiest citizens was really sickening if you think
about it. Bush cut the top income tax rate from 40% to 35% and dividend taxes from 40% to 15%. But of course he didn't cut government spending so in order to pay for his war we borrowed tons of money and as a result the budget deficit expanded to its record $454 billion in 2008.
But the question is who were we borrowing the money from? First, foreign countries such as China and Japan, which want to prop up our economy. But second and most important, rich people, the same rich people which benefited from the Bush's tax cuts. There's an old saying on Wall Street: "If you want to become rich, buy stocks. But if you want to stay rich, buy bonds." Rest assured, the largest holders of Treasury bonds after foreign nations are rich Americans, collecting steady interest on their billions.
In other words, we've been paying rich people interest so they could have a tax cut. How's that for income