Wednesday, October 29, 2008

Who should get tax cuts?

"Tax cuts" to the wealthy spur investment only in Treasury bonds. There is no free lunch. The money to operate government has to come from somewhere. It either comes from taxes, or it comes from taxes + treasury bonds. Either way, the same amount of money is taken out of the economy to fund government. The difference is that the upper classes get interest (a redistribution of income from all taxpayers) on the t-bills, which obviously they prefer but which is less than ideal in that it redistributes some money from the lower classes to the upper classes.

The way to spur the economy is to increase consumption, not investment. There is already sufficient investment capital, and if there isn't, we can put the government in the business of providing investment capital the way they've done with the banks. Now, if rich people get more money, they don't consume. They invest. They're already consuming everything they want to consume. But if a poor man gets more money, he'll go out and buy something that he wants or needs, new clothes, a new car, whatever. This will in turn spur more retail and manufacturing jobs.

So as you can see, tax cuts work to spur the economy only when targetted at the lower classes. "Spreading the wealth" as Obama put it is just good economic sense, even for the upper classes, because it increases the demand for products produced by the companies owned by the upper classes and thus increases their incomes and profits. As for whether tax cuts for the lower classes should be funded by increasing taxes on the upper classes or by selling t-bills, both pull money from the upper classes. But selling t-bills means some tax money from the lower classes gets funneled *back* to the upper classes as interest payments on the t-bills. That sort of defeats the whole purpose of the tax cut. So Obama's proposal to allow the tax rate on the upper classes to rise back to its original 39% rate is just plain smart.

Of course, that's also why it is controversial amongst those who decry it as "socialist". Because "smart" and "Republican" in the same sentence? Uhm, no. As for the notion that a tax rate of 39% will stop wealthy people from investing or make them work less hard, uhm, that is what the tax rate was during the Clinton years. Funny, the Clinton years sure seemed more prosperous than now, hmm?

-- Badtux the Economics Penguin


  1. Look you socialist Penguin that ain’t real ‘Merica.

    What real ‘Mericans want is the best schools, the best roads, the best infrastructure, and the best military to shoot dem terooris with out having to pay taxes or with paying as little taxes as we can stand say five percent.

    You socialist Penguins no nothun and r probably commuynist pigs.

    On another note, you make a lot of sense Penguin, come over for your favorite fish and beer.

  2. You just summarized the Republican position in a nutshell -- that we can have all the benefits of government (good schools, good roads, good infrastructure, good military) without paying for it. It's all about getting something for nothing. And they sold that bilge to the American public for *twenty-eight years* now, and the American public gulped it down like an old bluetick hound dog on a bowl full of Alpo. Well, we sure the heck guzzled that Alpo down, but now the bowl is empty, and now what? Well. Guess we got a problem, hmm?

    - Badtux the Something for Nothing Penguin

  3. who ever said republicans say things to do the right thing -- they say things to get elected - whether they are lies or wrong.

    besides how many people at the palin rallies make more than $250K - and should so worry about obama's tax "increase" -- and you would think some of them would want a little of that wealth the mccain class want to hold onto


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