Why Tax Cuts Won’t Work

Feb 02, 09 Why Tax Cuts Won’t Work
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Here I go again.  I feel the need to explain why, besides the damage they have wrought to the stimulus plan, the Republican push for tax cuts is an ineffectual and misguided economic policy.  Besides a few economists that are friendly with the highly partisan Heritage Foundation, most agree that tax cuts are not an effective way to stimulate the economy.

Considering how deep the recession is, tax cuts will not lead to consumption.  The reason why the recession is deepening is because we have entered the period when people are not spending money, which leads to a decrease in demand.  This decrease in demand leads to people being laid off in order for the companies to remain solvent.  Supposing that every American spends every cent of their $500 tax cut, consumer spending still would not bridge the gap in GDP.  Rather, we have increased our future debt load by implementing a tax cut that will do nothing to end this recession.

Targeted tax cuts should be an essential part of any stimulus plan.  However, the tax rebates of 2001 and 2008 proved that tax cuts alone will not help us get out of this mess.  Congress needs to invest massive amounts money into critical infrastructure, which has been neglected for over 30 years.  However, the debate has shifted over the last month.  Paul Krugman predicted how the Republicans would shift the debate would about a month ago.  He also explained much better than I can why these tax cuts won’t work.  Some part of me really wants to believe that this Republican stand is really based on principle.  But I know, in my head and in my gut, that many of them either do not really have a grasp on how economics work, or the ones that do have no interest in helping us recover.  Either way, the Democrats and President Obama must take a stand and fight against these provisions that will harm us greatly over the long run.

You can find tons of excellent information about the problems with these proposed tax cuts here, here, and here.

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  1. Giving a “stimulus check” is not a tax cut. It is a tax credit. There is a HUGE difference and the fact that you cannot tell the difference speaks volumes as to your ignorance.

    A tax cut is a reduction in the actual taxes we pay – payroll, capital gains, ect. Doing this, like Reagan did, will stimulate the economy in the short and long term as it did in the 80’s and 90’s.

    Try doing your own research and coming up with your own opinions instead of being a partisan ideologue without a clue and just spouting Krugman’s bullcrap…

  2. bubbleRefuge /

    Tax cuts can work. The reason some of the most recent
    tax cuts programs haven’t had a lasting effect is is because they were not big enough. Institute an immediate and indefinite payroll tax holiday and this economy will coming roaring back in a few months. see proposals at http://www.moslereconomics.com

  3. James-
    You never addressed how tax cuts will pull us out this deflationary spiral. In addition, tax cuts, like the $2 trillion proposed by the Repubs in the Senate will further increase our national debt. Who do you think is financing our debt? Ironically, the Repubs got their tax cuts and were able to keep their obstructionist image. I think they won this round, at the expense of the country.

    BTW, I should have clearly stated that the tax rebates of 2001 were accompanied by tax cuts as well. It was not my intention to conflate that issue.

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