Not Tax Cuts Again!

It is a terribly sad to discover this weekend that the Obama stimulus will probably include $300 billion in tax cuts. It is of course designed to placate the Republicans and conservative Democrats. But it is another sign the nation seems incapable of doing what it must. There is little sense of the urent need for serious public investment and social programs to help even the playing field.

There are plenty of computer models that will tell us it will stimulate the economy as well--or almost as well--as state aid or more unemployment insurance. First of all, it will have a lower Keynesian multiplier, so it makes it a second best stimulus. Second, it depends on how it is targeted. If it goes to the well off or big business, it will be mostly wasted.

But the tragic shame of it is that America has too many crying needs for this political pandering, and Congress apparently has insufficient sense of how deep the nation's economic and moral hole now is to disavow it. Such attitudes are the telling sign of a nation in decline.

Moreover, the evidence is overwhelming that a somehat bigger government sector in no way will impede the growth of productivity. To the contrary, an age of neglect will make any well-done government investment a productivity stimulant of even dramatic potential.

Finally, taxes are not high in America. I repeat, taxes are not high in America.

Such days as these makes it hard to keep one's chin up. America can't afford any more big mistakes. But this will be one of them.

Comments

[WaldoFlotney]

If having more government were the best solution than why not have government do everything? The simple answer is that the government does not have the right incentives to behave in a way that is anywhere near as productive as the private sector. Take a look at countries that have larger governments and they all do worse economically than those with less government. Look at the unemployment rates that they have had in Western Europe. They are much worse than we have had here. Furthermore their deficits, etc. are worse than ours as well. Is that what we want?

"Moreover, the evidence is overwhelming that a somewhat bigger government sector in no way will impede the growth of productivity." Are you kidding me? I would LOVE to see the overwhelming evidence of this. This guy is obviously from another planet and is just making stuff up. There certainly is not any overwhelming evidence on this point - if there is it is contrary to his point.

LeftRight, you fail to take into account that taxes provide incentives to economic behavior. You also seem to give employers essentially unlimited power over their employees in determining their wages. If that were the case wouldn't all employers simply pay their employees the minimum wage?

[LeftRight]

Not to mention the fact that cutting taxes will do no real good. The reason is actually kinda complex, but it relates to the difference between the rich and the rest of us. For this we need to define "rich" and I'm doing so as those who make enough money that at the end of the month they still have some left over, used for savings or investment.

The rich, upon receiving a tax cut will have more money to save or invest.

The rest of us, upon receiving a tax cut have a different proposition. Imagine that you make $100,000 and pay $50,000 in taxes. Your employer writes a check for $100,000 and you get $50,000, which means that he knows you will work for $50,000. Say you get a tax cut dropping your taxes to $25,000, your employer will end up cutting your pay down to $66,700, which will reduce your take home pay to $50,025, but HE will be paying a lot less!

There are two basic ways that the employers do this..... Generally they wait it out with raises less than inflation to cut it down, but sometimes they will simply FIRE the people making $100,000 and hire new people making $66,700!