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Tax Cuts for the Wealthy Will Not Stimulate the Economy; Government Spending on Infrastructure Will
Topic Started: Oct 24 2012, 01:56 PM (351 Views)
tomdrobin
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Demand needs to increase for the economy to return to full employment. Businesses hire people when demand warrants it. Different economic policies can be more or less effective in stimulating demand. In the ongoing debate over economic policies, the question we should be asking is which policies give the most bang for the buck in terms of providing the economic demand needed for recovery.

There are two main ways that policies affect demand. The first is direct demand from government when it purchases goods and services through contracts or hires labor directly. The second is indirect demand from providing income to people, such as through tax cuts, who will then eventually spend it.

For the latter case of providing income to people, the level of stimulative effect depends on the personal circumstances of the people in question. Generally speaking, the lower a person's income, the greater the percentage of that income they will spend quickly. People who previously had no income will quickly spend a high percentage of any new income they receive. People with high incomes will spend much less of any new income they receive, especially the wealthiest who are already buying what they want.

So for getting the most bang for the buck in creating demand, and thus jobs, we have three broad categories of government policy options:

1) Direct government purchases or direct government hiring gives the biggest bang for the buck. Labor gets hired to fulfill contracts, and those hired employees now have incomes that they can spend. In addition, those new hires also will require materials, equipment, etc. such as an office to work in, a computer, a bulldozer, asphalt to pave roads, and so on. Each of these purchases creates additional demand for labor in order to produce them.

2) Tax breaks or benefits for low-income earners is the second most efficient policy option for creating demand and jobs. As I mentioned, low-income earners spend the greatest percentage of any additional income they receive. So payroll tax cuts, unemployment compensation, and tax credits targeted at low-income earners fit into this category.

3) Tax breaks or deductions for high-income earners is the least efficient stimulus policy. High-income earners spend the smallest percentage of their incomes because they have the least marginal benefit from spending. In other words, they have more of what they need and want already.

Now, it is true that the economy benefits from each of these policies, and we could have them all if we didn't care about the deficit. But if we admit that there is a limit to how much deficit we are willing to take on (or we'd like to maximize economic growth with minimal deficit), then we must pick and choose.

In that case, the answer is clear that the first thing that should be taken off the table is tax breaks for the wealthy. Instead, the economy would be better served by direct government demand (such as infrastructure projects) and help to low-income earners (such as through low-income tax cuts).


http://www.policymic.com/articles/3429/tax-cuts-for-the-wealthy-will-not-stimulate-the-economy-government-spending-on-infrastructure-will
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Berton
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More taxes means more deadweight on the economy.
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Brewster
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Good article, Tom,and very true.

In addition, investing in infrastructure and education is a very good first step in convincing industry to invest in manufacturing at home, as the experience in Canada and elsewhere has shown.
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Berton
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http://s1.zetaboards.com/Fire_And_Ice/topic/4974105/1/#new
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Pat
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When Obama talked congress into the first stimulus, the pitch was that shovel ready infrastructure work was needed and this was the perfect fit. Hire workers for those jobs. But as I understand it, very few shovel ready jobs were out there and the idea fizzled at the launching pad. So my question is can you name the infrastructure programs that are ready to go, ready to hire additional workers, and will in the short to mid term time frame, help alleviate the economic woes? Talk is cheap, let's see what you are talking about.

Secondly, how many math and science teachers are unemployed right now? The president says we need more and by hiring them, this too will help the economic recovery.

Our jobs and economic woes exist right now, I think we all agree we need infrastructure investment and math and science teachers, but come on, are you hanging the economic stimulus on pie in the wsky here, or is this idea on the runway ready to fly?
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Tax cuts for the rich have done and will do nothing to help this country. I have been claiming that for years
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Pat
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I don't doubt you for a moment Joe.
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tomdrobin
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Pat
Oct 24 2012, 10:45 PM
When Obama talked congress into the first stimulus, the pitch was that shovel ready infrastructure work was needed and this was the perfect fit. Hire workers for those jobs. But as I understand it, very few shovel ready jobs were out there and the idea fizzled at the launching pad. So my question is can you name the infrastructure programs that are ready to go, ready to hire additional workers, and will in the short to mid term time frame, help alleviate the economic woes? Talk is cheap, let's see what you are talking about.

Secondly, how many math and science teachers are unemployed right now? The president says we need more and by hiring them, this too will help the economic recovery.

Our jobs and economic woes exist right now, I think we all agree we need infrastructure investment and math and science teachers, but come on, are you hanging the economic stimulus on pie in the wsky here, or is this idea on the runway ready to fly?
Many economists said at the time, that the stimulus wasn't big enough. Increased funding for education for hiring math and science teachers is for long term competitiveness not an immediate recovery remedy. Increase government spending and taxing to pay for it is the way out of this mess. Romney's claim that his business success will translate into job creation is another fantasy. Herbert Hoover was an extremely successful businessman. His acumen certainly didn't help him get the economy going in the great depression.
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Berton
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So you think more money for no shovel ready jobs to spend it on would have helped? Would you explain that and also explain how more taxation gets around the deadweight problem.
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tomdrobin
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Deadweight problem? You mean Romney's 47%? Expiring all the tax cuts would go a long way toward fixing that. The one loonie paranoid conspiracy I wish were true is the FEMA camps. We could do wonders for the gene pool by rounding up the senile right wingers. :teeth:
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