The Stupidity of Income Tax Cuts...

[Linette]

...for rich Americans is explained by James Kroeger in his blog entry today:

“Advocates of Supply-Side economics have apparently never realized that when they recommend across-the-board income tax cuts AND matching reductions in government spending, they are proposing a policy that—-all else equal—-is guaranteed to either cause a recession or make any ongoing recession worse. Across-the-board income tax cuts are CONTRACTIONARY (assuming matching spending cuts) because wealthier recipients of income tax cuts will save some of the extra disposable income they are given. Since not all money that is saved is lent out to borrowers, there is a net leakage of money out of the economy whenever money is saved.”

“...even if an income tax cut were designed to give refunds only to people who would be certain to spend all of it (poor people), it would still not provide any net stimulus to the economy. When spending-cut-dollars match tax-cut-dollars, the money that refunded taxpayers would get to spend WOULD HAVE BEEN SPENT BY THE GOVERNMENT ANYWAY. This means that no net increase in aggregate spending can occur, so there is no net increase in jobs or incomes.”

“...nearly every introductory economics textbook in America today mentions tax cuts as one of the federal government’s expansionary fiscal policy tools and fails to mention that tax INCREASES are far more effective than tax cuts in stimulating the economy when the money that is collected in taxes would have otherwise been saved. One unfortunate consequence of this educational failure is that we now have politicians in charge of America’s federal government who have cut taxes repeatedly over the past few years in the mistaken belief that they would stimulate the economy.”

“The only reason why the Bush Tax Cuts did not plunge the economy into an even deeper recession is because the federal government increased its spending after Nine-Eleven using borrowed money to finance it instead of tax revenue. Unfortunately, the stimulative effect of this increased spending was largely offset by the contractionary effect of the tax cuts. Giving the largest share of a tax cut to rich people who are most likely to save a great deal of it is not a very intelligent thing to do when the economy is struggling to pull out of a recession. The result has been a sputtering and long overdue ‘recovery’ that has created far fewer jobs than almost any economic recovery in American economic history in spite of the added benefit of historically low interest rates.”

So Kroeger is saying that increasing taxes on the wealthy is the way to stimulate the economy.

Make sense?

.

[bemildred]

1. Perfect sense.

Obvious to anyone with a brain, obvious from the historical record.
But unpopular with the ruling class, hence all the bullshit.

[ladjf]

3. The thugs in power understand it perfectly.

The "bank robbery" is in progress. What a sweet scam!

[getmeouttahere]

2. Not to over-simplify....

but not only are the rich more likely to save a majority of their tax savings, but where is the so-called trickle-down? We're talking about 1-2% of the population, right? If this is a consumption-driven economy, it seems to me having MORE consumers is the way to improve it. It's not like that 1-2% is going to buy 50 TV sets each.

The repug economic model just points once again to the belief that they want to take us back to another gilded age.