Political Economy:More discussions on tax cuts

In Keynesian economics (the macroeconomic theory that is the primary source for Republican and Tea-Partier claims that taxes on the rich should be cut), it is said that there is a certain point at which there are too high of taxes for there to be any more motivation to work and create wealth. This is true, but no one knows where this point is, and further, it is likely above what large corporations pay now.


When politicians and their followers claim that tax cuts for the wealthiest individuals and corporations will help our economy-they are being very deceptive because this is absolutely not always the case. The very rich ALREADY have plenty of incentives to make money-namely all the money they are making. Giving them tax breaks absolutely does not mean that they will use it to create jobs. It has been shown that this is only the case rarely and in those cases most of the jobs created are out of the country. The reason why I think people believe in the propaganda that the very wealthy need to pay less is because they are using a nugget of truth to convince people-the truth is that tax breaks on small and medium businesses and individuals-all those are VERY helpful to stimulate the economy and create jobs. But what is NOT very helpful is instead giving that money to such wealthy corporations that it makes no real difference to how much they're going to invest because (unlike small and medium businesses) they already had enough cash on hand before the tax cuts (say the three under Bush). The best tax cuts would be to small and medium businesses and the middle and working classes. But tax cuts are not the only way to stimulate the economy. One study in 2008 by  Mark Zandi, chief economist for Moody's Economy.com found that when the government gives food stamps there is a fiscal multiplier of 1.73. The same study found that the fiscal multiplier for making the Bush tax cuts permanent, had the second lowest multiplier, 0.23. (Zandi, Mark. "A Second Quick Boost From Government Could Spark Recovery." Edited excerpts from congressional testimony July 24, 2008.)

O,k., the multiplier effect is also part of macroeconomic theory. Here we are talking about fiscal multipliers-those dollars put into the economy either by increased government spending OR by reducing revenue by cutting taxes. In the testimony and its link above, you can see that the economists (usually not a bunch of liberal hearts to say the least) agree that the Bush tax cuts (most of which went to the most wealthy-almost nobody argues that the people who got small checks shouldn't have gotten them) where not a good investment as far as trying to stimulate the economy. This is why they gave the tax cut a low multiplier-only .23 (or for every dollar of tax cut, only 23 cents was being reinvested in the economy). This is because over 75% of these businesses/people had enough money already to invest and the additional tax reduction did not get them to invest any more money at all in the economy.

 

Now, if you look at the highest score for a fiscal multiplier-it is a temporary increase in food stamps which scores 1.73. This score is what you want to stimulate the economy. This means that for every dollar paid in food stamps the economy generated an additional 73 cents! This is what a struggling economy needs. Why does it work this way? Because when you give a tax break or a benefit like food stamps to people that are poor, working poor, and middle class-most of them spend that money IMMEDIATELY thus giving the boost to the economy that it needs.

 

So, why do so many Americans believe that giving tax breaks is better for our economy than tax breaks or certain programs for poor, and middle class? Because those top 5% that control almost all the wealth in this country want us to turn on each other to keep us from turning on them.

 

I am not even advocating for increasing corporate taxes for the richest corporations-I merely want to sunset the three tax reductions that were made under Bush.

 

A lot of small and medium businesses don't get the same level of loopholes (because they cannot contribute as much in congressional elections) as large corporations and therefor are the ones that pay the highest rate which is 30-35%. Corporate loopholes make the corporate tax rate in the United States range anywhere from 0-35% and it is the big ones who get away with paying closer to 0%.

 

If we really want to give incentive for creating jobs why not give them the tax break AFTER they provide those job IN THIS country. Why just give them lots of money (three tax cuts under Bush) that supports the infrastructure and people they use to get rich and not even have any assurance at all that they will create a job in America with that money? We could assure them of the refund by setting up a program to get a tax cut each and every-time the create a job IN AMERICA. This would have the same incentive as a regular tax cut but none of the risk that they will decide to sit on the money instead of investing it or investing it overseas.

What do you think of this idea?