Tax Cuts, Tax Cuts, We All Scream for Tax Cuts!
What tax-paying citizen doesn't want tax relief? I mean, isn't that the history of America? We hate tax - especially when it comes without representation. Tax relief sounds sexy, but the reality is that tax relief costs the government money — and the government needs its money. Why? Because we are in a recession.
What SpkTruth2Pwr? But we are in a recession because people have no money to spend! And the rest of the disposable income they do have is going to taxes!
Macroeconomics tells us that a country's Gross Domestic Product - one measure of a country's economic strength - depends on consumption, investment, government spending, and net exports.
The US's GDP stopped growing through 2008 and then grew by larger amounts over time starting in January 2009, before going back to diminishing growth each quarter after January 2010.
In spite of efforts to create jobs, lower interest rates, etc, three parts of GDP are not showing continued gains:
Consumption - consumers are spending about half of what they were in 2008.
Investment - markets have been volatile, showing sharp drops during the summer months of 2010.
Exports - US has been importing more than they export for years, resulting in a negative export value.
Who's left? The government. Did you know that government spending stimulates GDP? It helped during the Great Depression - that's what the New Deal was all about. Admittedly, high government spending for the sake of spending is bad. But spending on relief, recovery, or reform is good government spending...like the government stimulus of today...
All of this talk of fiscal responsibility is well-crafted distraction from this reality.
Tax relief is another way to encourage consumers to spend. But the trick is, consumers would have to spend the money.
And that is my biggest gripe against continuing tax cuts for all including the wealthiest of Americans. Because not only will it cost the government $2.7 trillion in revenue, but also the wealthiest Americans are more likely to save the extra money than spend it.
So...tax cuts are good, but they have to be targeted and we cannot assume this will be the silver bullet for our weakened economy.
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