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NYT: Tax Cuts Will Not Help The Economy

From those economic gurus at the New York Times:

Tax Cuts May Prove Better for Politicians Than for Economy

September 10, 2010

Republicans, and a few Democrats, assert that the Bush tax cuts should be extended for everyone, warning that a tax increase right now, even if limited to the highest income bracket, would hurt small businesses and choke off an economic recovery that is already gasping.

Given the economy’s persistent weakness and an unemployment rate hovering above 9.5 percent, those arguments have gained traction.

How crazy, huh.

And because another round of government stimulus spending is considered politically unviable even if it were warranted, the debate over the tax cuts will be laced with promises to spur economic activity and reduce unemployment. The concept of lower taxes is so appealing to voters that many embrace them as an economic cure-all.

But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand

The argument for yet another ‘stimulus’ is to put money into people’s pockets, which would increase demand for products. So if more people have more money in their pockets because of lower taxes, why should there be lower demand? This simply does not make sense.

So while the decision on whether to extend the tax cuts will have a lasting impact on the deficit and on how the nation’s tax burden is distributed, economists and tax experts say it is unlikely to offer much immediate relief for high unemployment and sluggish growth.

“It may have some small impact along the margins, but firms don’t hire based on tax breaks; they hire based on demand,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center

The “nonpartisan” Tax Policy Center, is a partnership between the ultra liberal Brookings Institute and the ultra liberal Urban League. The "nonpartisan" Tax Policy Center has never seen a tax cut that it liked.

When they were signed into law in 2001 and 2003, the huge package of income and capital gains tax reductions that became known as the Bush tax cuts were hailed as a way distribute the government surplus and promote long-term economic growth. Mr. Bush was so confident in their power to generate business growth and revenue that he predicted they would enable the government to pay down $1 trillion in debt in just four years.

Those surpluses have now become crushing deficits because of a combination of factors, including the recession, the cost of the wars in Iraq and Afghanistan, the Medicare prescription drug benefit, and the $1.7 trillion in forgone revenue from the tax cuts themselves

And Hurricane Katrina. And an endless list of spending bills rammed through by a Democrat Congress. And yet the economy was able to withstand all of those things for years – thanks primarily to the Bush tax cuts.

Whatever Congress and the administration ultimately decide about extending the Bush cuts, however, the narrow confines of the debate show how successful antitax groups have been in defining the terms used to discuss tax policy

Edward D. Kleinbard, former chief of staff of the bipartisan Joint Committee on Taxation, said the reliance on tax expenditures had distorted the budget process because it induced the public to overlook the fact that — unless they are accompanied by spending reductions — tax cuts have the same effect on the deficit as additional spending. It also allows politicians to make unsubstantiated claims about the power of tax-cutting to accomplish other economic goals, he said.

“The thought that tax cuts pay for themselves or that tax cuts alone can turn around this economy is magical thinking,” said Mr. Kleinbard, now a law professor at the University of Southern California. “The debate has become so unrealistic it makes you want to scream.”

In this entire New York Times article there is nothing to substantiate the claim that tax cuts would not help the economy in a major way. The most we have this assertion that this is "magical thinking" from a law professor. And we all know how great law professors are at handling the economy.

Just look at Mr. Obama.

This article was posted by Steve on Monday, September 13th, 2010. Comments are currently closed.

8 Responses to “NYT: Tax Cuts Will Not Help The Economy”

  1. Right of the People says:

    I wish I could become a liberal so I could ignore facts and just believe my own warped view of how the world works. I’d really love to but I heard the lobotomy can be really painful and I’d kind of squeamish about stuff like that.

    The Slimes has become the first daily published fiction magazine. They haven’t printed the truth in so long I don’t think they even know the meaning of the word.

  2. proreason says:

    “tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy”

    of course.

    Why should we believe the 100% track record of tax cuts improving the economy.

    The Slimes certainly knows that this will be the one time in all of history that will go the opposite way.

    ps: tax cuts under Obamy will have only a fraction of the benefit they would have under anybody else. Everybody with money to invest will still know that the Moron is a marxist and that he schemes night and day to destroy private enterprise…..so I wouldn’t be surpised if real tax cuts don’t have much of an impact until someone who believes in free enterprise in in the White House.

    And of course, ‘tax credits’ will have no benefit at all. That will just be more borrowing from our grandchildred to buy iphones for Obamy’s dependents.

  3. untrainable says:

    What gets me is the way Obie says that the tax cuts will cost 70 billion dollars. Cost who? Costs the government!
    When he says “WE” can’t afford the tax cuts, he is using the royal WE. Simply put, the government won’t have that 70 billion dollars to spend on underground turtle bridges to nowhere, and grants for subterranian balloon navigation classes for crackheads in poor neighborhoods.

    I’ll use we the way WE use we. (and by we I mean us) We want to keep our money. We earned it. We deserve it. We know how it should be spent. On greedy selfish things like rent, food, electricity, gas, childcare, saving for retirement… I’m so greedy and feel so ashamed… [sarc]

    • jimreport says:

      If you don’t get money, the money you didn’t get is added to the list of your expenditures. Makes sense to me. Is losing 45 million by not hitting the Powerball or not getting a second job a tax deductible loss?

  4. untrainable says:

    Correction, that’s 700 Billion dollars not 70. Sorry for the mistake. Maybe I can get a job working for the investigative team tracking the tarp spending. I obviously have the math skills.

  5. platypus says:

    The real cause of this recession/depression is the 2006 election. That’s when it started – January 2007.

    The real reason that recovery is impossible is that the government is sucking up all the available credit by hawking Treasuries. Picture your cell phone family plan with four phone lines and you all SHARE a thousand minutes a month. The twitter queen of the family goes nuts one week and sucks up 800 minutes.

    The rest of the month is going to be mighty lean, as far as phone calls go. The same is true for our credit system. There’s only so much to go around, and when they run out they get the Fed to print up some more but it doesn’t add to the supply of credit – it just decreases the value of each unit.

    Untill we elect people who will roll back the federal budget to 2008 levels, we will not have a decent credit market to fuel wealth creation. Tax cuts are nice but spending cuts are the real wealth creator. I suspect that the entire credit market is shifting into private loans outside of the system. If I’m right, then those wealth creating loans are untraceable and the wealth they create is untaxable.

    In the end, we may very well have to adopt the Westmoreland solution – “We had to destroy the village in order to save it.”

    We may very well have to destroy the system (or passively allow the system to be destroyed) in order to save our country and our future.

    Buy silver now, while it’s cheap.

  6. Reality Bytes says:

    Now Really! When was the last time any business raised prices in a recession & made more money? What makes anybody think raising taxes will increase revenue? IT’S THE SAME THING STUPID!!!

    Is it me? Am I crazy?

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