ECONOMICS 101:
The one thing all Democrats need to understand about the economy above all other considerations is the key relationship that exists between aggregate spending & jobs. It's as simple as this: all jobs in the economy are dependent on the SPENDING of others. When unemployment is high, it is because an insufficient amount of aggregate spending is taking place. When economic growth occurs and unemployment drops, it is because a net increase in aggregate spending has occurred. Any time there is any level of unemployment, it is because insufficient spending is taking place.
By themselves, income tax cuts cannot stimulate the economy because they cannot cause a net increase in aggregate spending to occur. This is because any money that taxpayers receive from an income tax cut is money that the government can no longer spend. Tax cuts reduce government spending by exactly the same amount that they increase taxpayers disposable incomes. So even if you were to pass an income tax cut that would go only to people who would spend all of it, the net effect of the cut would be no change in aggregate spending. No net economic stimulus.
If you have an income tax cut that is distributed primarily to the wealthy, then your tax cut is going to have a contractionary effect on the economy. That's because rich people are far more likely to save a good bit of any tax cut they receive rather than spend it. When this happens, the result is a net reduction in aggregate spending because at least some of the money that would have been spent by the government is taken out of the economy by wealthy savers, instead. A net reduction in aggregate spending occurs. This causes a reduction in jobs.
If the government wants to stimulate the economy to achieve higher levels of economic growth, it should increase the amount of income taxes it collects from the wealthy, not reduce them. When you increase the taxes that the government collects from the wealthy, you are collecting money that otherwise would have been saved (removed from the economy) and are spending it, instead. Aggregate spending levels increase, unemployment drops. The economic value/disvalue of income tax cuts is exactly the opposite of what the Republicans have been telling the American people for decades.
The tax cuts that the wealthy received from George Bush and the Republicans over the past five years are the reason why the economy's `recovery' since the 2001 recession has been one of the most anemic on record. The only reason why Bush's tax cuts did not throw the economy into a deep recession is because Congress also did something else that actually did provide a true economic stimulus to the economy. It maintained and even increased federal spending by using borrowed money instead of tax revenues. The tax cuts didn't do it; the borrowing did.
So let's make sure we understand what the Republicans have been doing. They have been promoting their `belief' that tax cuts will provide a stimulus to the economy, in spite of the undeniable fact that it is not possible for an income tax cut to do any such thing. They've been able to cover up the failure of their `belief' only because they combined their tax cuts with other fiscal options that actually did have a stimulative effect on the economy. Now they are trying to claim that their tax cuts are the special ingredient that has caused the economy to finally recover. It's an outrageous misrepresentation of the truth.
It's time for Democrats to start telling the American people the truth about the stupidity of Republican Tax Cut Populism. Tell them the whole story. Insist that credit be given to those initiatives that actually do improve economic growth. Explain why increasing taxes (on the incomes of the wealthy) is actually the best way to stimulate the economy and expand prosperity. Make sure that the media understand that the only way we're going to be able to eliminate poverty is by SPENDING enough as a nation to employ all those who are in need of a job.
The Republican Nemesis
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