I'm not stupid, and most of you aren't either. I got my degree in economics from UCLA back in the John Wooden era, and then got an MBA, eventually going to Wall Street to be an analyst. Later, I ran a small hedge fund, which I retired from running a year ago. So I think I know a thing or two about economics. First and above all, I know one simple economic fact, in answer to the subject header of my post: "When is a tax CUT an actual TAX?" Let me explain the answer after the jump...
A tax cut is a shifting of money from one bucket to another. It neither creates nor destroys capital unless there is an incremental multiplier effect on the shifting of that money.
In the case of Republicans, they want to shift as much money as possible from the Treasury's coffers to the private sector and to individual pocketbooks. They argue this under the guise of "creating jobs", i.e. that the small businesses that save on their taxes will reinvest such proceeds into the US economy and make capital/labor investments that create jobs. Never mind that there is absolutely no proof of this theory actually being true, and never mind that we live in a global economy in which RISK capital flows to its highest ROI, i.e. offshore to emerging markets in this day and age. Also, in this risky economic environment, many high net worth people and businesses just salt the money away in risk-free bank accounts, Treasuries, or buy precious metals.
The point I'm making here is that the GOP is using FALSE assertions in promoting the idea of extending the Bush tax cuts to the higher income earners. And they know it. You know what else they know?
They know that the national debt created by reduction of tax rates will one day have to be repaid. They won't tell people that fact, but they know. It will either have to be repaid through cheaper dollars via inflation, or will have to be repaid through higher taxes of one form or another. Maybe it will not be higher income tax rates. Maybe it will be a value-added-tax, or a VAT. Who knows, but we cannot magically borrow money from other countries or have it funded by the Fed's quantitative easing without it COSTING us something down the road. Either reduced services and benefits for ordinary people, higher inflation, or higher taxes and fees. Or some combination of all this.
So, in answer to my original question, "When is a tax cut an actual TAX?", it's simple. The answer is ALWAYS. This is, in many ways, a zero-sum game. Money is being shifted away from Treasury coffers that could be used to pay down debt or pay for vital programs, and the amount borrowed to do so will need to be serviced and repaid. Even if no new revenue sources or higher tax rates occur, inflation surely will, and inflation is the most insidious form of tax, as even Larry Kudlow has said in the past.
By the way, tax cuts for ALL income levels create FUTURE encumberances or taxes for us or our children/grandchildren. The loss of sense of sacrifice by this generation for future generations is, in my opinion, the biggest shame of this current era in American politics. Selfish thinking reigns supreme.
So don't be fooled. You aren't stupid, even if the current DC debate and potential deal between Obama and the GOP might assume that you are.