Neocon-Artist Tax Cuts [View All]

[unlawflcombatnt]

The rationale for the Neocon-Artist tax cuts has always been dubious. Though there's some theoretical basis for the tax cuts, the reality does not support their tax cuts.

Tax cuts put more money back into the private sector of the economy. Part of the money goes back into the economy as either consumer spending or capital investment. (This is if imports and exports are excluded.) The part that goes into savings does not go back into the economy. Savings do not cause economic growth. In fact, increased savings shrinks the economy.

Whether the tax-cut money goes into consumer spending, capital investment, or savings depends on what tax bracket receives the tax cuts. The more the tax cuts are slanted toward the affluent, the more that goes into capital investment and savings. The more the tax cuts go to the less affluent, the more that goes into consumer spending.

Cutting taxes on the exclusively on the non-affluent would stimulate consumer spending mostly. Cutting taxes exclusively on the affluent would mostly increase capital investment or savings.

If tax cuts were overly slanted toward the affluent, and consumer spending did not increase any, the tax cut money would go disproportionately more into savings than to capital investment. This is because consumer spending is necessary to create demand for capital investment. Consumer spending is necessary to create demand for the production that capital investment would facilitate.

If high-income tax cuts cannot be productively invested, they "leak" out of the economy as savings. Thus, the degree of economic stimulation from tax cuts is determined by how much of it is recycled into the economy. The benefits of the tax cuts are greater if given to those who will spend it, rather than save it. (Again, this explanation excludes money "leaking" in or out of the economy through foreign trade.)

The benefits of tax cuts on the wealthy is to create more capital to increase investment. The benefits are limited by investment opportunities. These investment opportunities are limited by anticipated returns on that investment. Anticipated returns are determined by anticipated demand for the production the investment facilitates. Demand for production is created by consumer spending, and to a lesser extent by demand for capital equipment. (However, demand for capital equipment is also limited by consumer demand for the production of that capital equipment.)

The markets are currently "glutted with capital" according to the Wall Street Journal. Other sources maintain that the markets are "awash with cash." Earlier this year Warren Buffet stated there was a lack of investment "opportunities." All current indications are that there is abundant investment capital at present, but a lack of places to invest it. This argues against any further benefits to our economy by further tax reductions on the "investor" class. In contrast, it argues for reducing the tax burden on consumers.

unlawflcombatnt
EconomicPopulistCommentary

The economy needs balance between the "means of production" & "means of consumption."