Cutting income taxes is no way to recover from this recession. In the first place, this recession was caused, in part, by tax cuts disproportionately benefiting the wealthiest Americans. Trickle-down, voodoo economics just doesn’t work. If anything, we should be raising taxes on the wealthy back to where they used to be.
Tax cuts will NOT boost the economy for several reasons. First, they only help people who have taxes to pay – for people out of work, with no taxable income, they do nothing. Second, they are a net deduction from government revenue without a corresponding boost to revenue in the future (they only deepen the deficit). Third, tax cuts and rebates for the rich tend not to be spent; a big portion of them are either saved or invested in things like the stock market. Middle class taxpayers will use some of their tax cuts to pay debt. Tax cuts for businesses, intended to get them to reinvest, are worthless because businesses already can write off reinvestments. And businesses will not reinvest in absence of demand for their product or service.
The way to get out of a recession this deep is only through stimulating demand for goods and services. And that depends on boosting jobs, wages and other direct income for people most likely to spend. Here’s a very simple equation:
Aggregate Demand = Consumer Demand + Business Investments + Net Exports + Government Spending. Of those, consumer demand is the greater part. It’s now dropping like a stone because people are losing their sources of income, like wages. Business investment will not occur without consumer demand for products and services. Our net exports right now are negative (we are importing far more than we export). So, that leaves government spending as the only viable tool in the box.
Why stimulate demand? It creates jobs and enables our entire economic structure and thereby our society. And a benefit of using government spending to boost demand is that a lot of it actually comes back to the government and thus is not a total loss. When people buy goods and services, those who sold it to them also buy other goods and services and it cycles through the economy. At several points people pay taxes back to the government from which the money came.
President Obama has put forth a spending program aimed at putting money into the hands of people who will spend it. This is how we picked ourselves up and dusted ourselves off after the Great Depression of the 30s. We can do it again. This money from our government, from “we, the people” collectively, is also an INVESTMENT in our future. Improved education, energy efficiency, infrastructure improvements, reducing dependence on oil, and even direct assistance to people in need right now builds a brighter future for us all. They call it the Recovery and Reinvestment Plan for a reason; that's what it will accomplish.
Obama knows what he’s doing. And Democratic Congress members get it as well. But, the Republican Congress members obviously don’t understand economics, as NONE of them voted for the stimulus bill when it passed the House. Apparently, it was more important for them to adhere to their rigid, unworkable, partisan ideology than it was to help restore and rebuild America. Ironically, while claiming they wanted to cut taxes, they voted against one of the biggest tax cuts in the history of the country, which was also in the stimulus bill. They just don’t get it. So, “we, the people” need to contact our Senators to tell them that we voted for change. We voted for a new direction, particularly regarding the economy. We expect that they will put the needs of our citizens ahead of their rigid ideology. We want to get the country moving again and moving in a new direction for the future.
Go to congress.org to see how to contact your Senator.