The Details....How Bush's Tax Cuts Hurt the Economy [View All]

[EVDebs]

http://www.alternativesmagazine.com/25/beaton.html

<snip>

"Propensity to Consume
It is virtually always the case (especially with this President) that a tax cut returns money to high income people disproportionate to the middle or lower income taxpayer. This makes understanding the spending patterns of the rich critical to analyzing the economic impacts of a tax cut. Thus, the question becomes: “What kinds of things do higher income folks spend additional money on, compared to moderate and lower income people?”

There is both a quantity and a quality dimension to the evidence on this question. Economists call the percentage of an additional dollar received that will be spent (as opposed to saved) the Marginal Propensity to Consume (MPC). On the quantity question, both the data and common sense support the fact that less wealthy people have a higher MPC—they’ll re-spend it all. They have to, they’re poor. Higher income people will save (or invest?) more, and therefore show a lower MPC. (If you consume only half your income, you have an MPC of .5. If you are at subsistence and can’t save anything, your MPC is 1.)

The essence of economic impact is the hand-to-hand re-spending of dollars. That is called the “multiplier”. A high MPC leads to a high multiplier, and that means a certain amount of spending will go farther in stimulating the economy by being “multiplied” more times within the economy and creating more incomes before the impact dies out like a ripple on a pond. That is the essence of the quantity element—put the money in the hands of people who will re-spend it (moderate & lower income) and the economic stimulus will be more pronounced per dollar provided."

As usual, Bush & Co.'s supply-siders have gotten it ass-backwards; also, it must be asked 'how much of the wealthiest's tax cuts were sent offshore ?'