Tax Cuts As An Economic Stimulus.

21. September 2010 by admin.

It’s one of the most important issues that will be debated in the coming months. Democrats, including President Obama, want to let the Bush tax cuts for the wealthiest two percent of our population expire. They claim that we can no longer afford these tax cuts and letting them expire would reduce the deficit and create more fairness for the middle class.

Republicans, on the other hand, claim that the majority of those making $250,000 or more per year are small business owners and that raising their taxes would cost us thousands of jobs. Indeed, they would not only make the Bush tax cuts permanent. They would cut taxes even further as a stimulus for creating jobs.

There are a couple of things I find troubling with the Republican logic. Most small business owners make far less than $250,000 per year. And those who make more than $250,000 likely won’t spend the extra money on their businesses. As a small business owner, I know that’s just not how things work. While some will put the extra money back into their business, most will invest the money in securities, save it or spend it on themselves.

But don’t just take my word for it. Let’s look at how most economists view tax cuts as a form of stimulus: They estimate that tax cuts have a return of 32 cents of economic growth for every dollar spent. On the other hand, programs like food stamps (which many Republicans oppose) have much higher rates of return. It’s estimated that such programs generate $1.71 of economic growth for every dollar spent. And, according to Mark Zandi, John McCain’s economic adviser during the 2008 presidential campaign, those unemployment benefits that Republican teabaggers so oppose are estimated to generate $1.61 in economic growth for each dollar spent.

As the nonpartisan Tax Policy Center put it: ” The tax cuts of 2001 and 2003 provided much less stimulus to the economy than other policies of equal cost would have. The underlying reason is that although the tax cuts were well-timed to provide a short-run economic stimulus, they were poorly designed for this task.”

They did, however, provide a nice windfall for the wealthiest Americans while adding billions to our deficit.

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