Tuesday, November 6, 2012

The fallacy of the Republican tax cut panacea

Posted By on Tue, Nov 6, 2012 at 8:39 AM

Ernie Dumas writes this week about the growing evidence that Republican dogma — that cutting taxes for rich people boosts the economy — doesn't work in theory or in practice.

We may be on the verge of getting a third example in Arkansas. If Republicans gain a majority and slash income tax receipts, it will certainly make the rich richer. But it will make government services — and employees and beneficiaries — much poorer. From Dumas:

The idea has always had a certain seductive charm, as long as you don’t think about it more than a minute. Then you have to ask yourself, does a business hire workers simply because the owner is going to keep more of his profits this year or next year and needs a place (the pockets of new employees) to park his new profits, or does it hire because the company needs more workers to meet a demand for more of its goods and services? Why, the latter of course. If there is no demand for more of your goods, no amount of tax savings will make you hire a new clerk or start a new
production line. Tax savings have absolutely nothing to do with it, unless taxes are so high that the owner would keep little or none of the extra profits from increased production. And that is not the case—not in the United
States, and certainly not in Arkansas. Even in the worst possible case, at current tax rates a businessman will keep two-thirds of his extra profits.

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