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The Tax Cut Stimulus Mantra Is Just Wrong

Category: Society
Posted: 06/28/17 23:24, Edited: 07/04/17 01:34

by Dave Mindeman

There is this pervasive argument that conservatives absolutely depend on for their approach to public policy.

An opinion piece at CNN is the ultimate example. Here we go:

Standard economics says that high marginal tax rates reduce economic activity by reducing the incentive to save and work. And the ACA taxes on investment savings and high incomes are exactly backwards from this perspective; they raise the tax burden on savings and working for high income taxpayers, the ones most likely to alter their behavior in response to such taxes, thereby slowing economic growth which affects everyone.

Is that really standard economics? I think the theory behind that has a little more to it than tax cuts for the wealthy stimulates the economy.

The ACA does tax investment savings and high incomes. And the Republicans want to roll all of that back, but the economic stimulus is just another unicorn theory without much basis in fact.

He says that the rich "alter their behavior" when given tax cuts...in a way that stimulates economic growth. This person sites an economic study from 2007 (10 years ago) and it only dealt with the idea of tax cuts in a government environment where spending would not increase - the study even goes so far as to say that tax cuts without spending increases has never actually occurred. Mainly because the tax cuts destroy revenue streams.

But let's get back to this "altered behavior". When a wealthy person gets a tax cut, where is the evidence that they would change their behavior to increase economic activity? They don't need the extra money. They more than likely would not need to spend it -so it would go back into a tax shelter of some kind - probably offshore and out of the economy entirely.

That doesn't sound like stimulus to me. As Democrats constantly argue, a tax cut to middle and lower class wage earners is a guarantee of economic activity - they need to keep up with regular expenses and maybe would use any extra money to make a purchase they wouldn't otherwise make. That is the ACTUAL definition of altered behavior.

The Republican philosophy continues to hold on to this archaic idea that tax cuts to the wealthy will free up the most money. It is an archaic idea because it is wrong. Giving tax cuts to lower income families affects more people with more incentive to action.

This continuous adherence to the old Reagan "trickle down" economic theory is devoid of rational thought and has prevented the Republican Party from any new ideas on economics for decades.

The high taxes that fund health care for many of the poor doesn't look to cause individual benefit. It is a societal benefit. And when people have health care and do not go bankrupt from health events, then everyone benefits - including the wealthy because everyone can participate in that economic activity.

The Republican broken record mantra on this needs to end.
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