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There's excellent political reasons for bringing some fairness back to tax policy and ending the Bush/Republican massive tax cuts to the rich. But there's also smart policy reasons, beyond the massive chunk of the deficit they comprise. The evidence is actually pretty sound that tax cuts to the wealthy just don't stimulate the economy, despite what Republicans would have you believe.

The CBO says so.

[E]conomic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand.

The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.

The office gave higher marks to the proposal, now embraced by President Obama, to allow small businesses to write off 100 percent of their investment costs.

Then there's Moody's:

Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell....

When tax legislation was signed by Clinton in 1993 -- raising the top tax rate to 39.6 percent from 31 percent -- the saving rate fell from 12.1 percent in the second quarter to 9.5 percent in the first quarter of 1994. The Standard & Poor’s 500 Index rose 1.9 percent from July through September, after little change the previous three months.

When the first Bush tax cuts were signed into law in June 2001, pushing the top rate down to 35 percent, the wealthy boosted savings. The saving rate climbed to 2.8 percent in the first quarter of 2002 from minus 2 percent in the second quarter of 2001. The increased savings coincided with a 1.1 percent decline in the S&P 500 index.

Saving is good, but now on the part of the people with all the income, anyway. More money in middle class folks' pockets creates more spending, creating more demand, creating more jobs. That's also true of unemployment benefits.

In addition to continuing the massive tax breaks for the very wealthy, what Congress needs to do to address the economy is extend the cuts for the middle class, create a 5th Tier of unemployment benefits for the millions of people whose benefits have run out, and save a quarter of a million existing jobs by extending TANF funding.

That's how to keep the economy moving.

Originally posted to Daily Kos on Thu Sep 16, 2010 at 06:30 AM PDT.

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