Money For Free

Congressional Republicans are now planning to halve taxation on dividents rather than eliminating. GOP leaders are in deep negotiations over details of the President’s proposed economic stimulus package with Democrats and moderate Republicans. It appears that many of the proposed cuts will be reduced or eliminated.

What Congress seems to be doing is taking the easy way out. Tax cuts are not a de facto way of stimulating the economy. Nor are they necessarily a burden to economic growth as the Democrats are arguing. Rather, Congress needs to focus on tax cuts that spur economic growth. However, that means they may have to make some politically risky choices.

The Heritage Foundation has a good description of what a pro-growth tax policy entails. In essence, while it may be politically easy to give child tax credits and $300 handouts, those measures do not produce a climate of economic productivity.

What needs to be considered are tax cuts that remove barriers to economic activity. The tax on dividends creates a negative stimulus to investment, something that drags down the economy, even if only by a small amount. As the Heritage Foundation’s report states:

Economic growth occurs when people work more, save more, and invest more. These are the behaviors that increase national income and boost the nation’s wealth. But not all tax cuts improve incentives to engage in productive behavior. With the total amount of tax relief limited, lawmakers will have to be very selective if they intend to encourage additional economic growth.

A pro-growth policy means that politicians must be willing to support tax policies that encourage investment and productivity. While tax relief is often a good thing, a tax plan that merely hands back money without allowing for economic growth does little to improve the overall economy. It may be politically expedient to give tax handouts, but the needs of economic growth require politicians to act on the interests of a stronger economy and not short-term political gain.

8 thoughts on “Money For Free

  1. Sounds like you’re suggesting that the tax cuts passed are geared NOT ENOUGH, rather than too much, to the wealthiest of the wealthy. The top tax rate has declined by nearly 70% since the 1950’s. Will it ever be enough for you guys?

    Even among free-market ideologue economists, there has been less than a universal endorsement of stock-market dividend tax cuts as promoting short-term or long-term economic stimulus. What you seem to be suggesting is the exact opposite of reality. Our economy is driven by consumers, so the only real way to stimulate an ailing economy is to boost consumer capacity to consume. Much as you like to pretend the working-class American is irrelevant to the economy, his consumerism wields considerably more stimulus power than a cash windfall to people who already have more money than they know what to do with.

    Particularly in today’s global economy, another budget-busting tax cut to wealthy folks is more likely to trickle OUT than DOWN. The bulk of the “investment” is likely to be seen in Swiss bank accounts and putting the finishing touches on their Beijing sweatshop. Either way, domestic unemployment rates and consumer confidence will continue to act as a suppressant to the economy.

    This country is getting to the point where the only taxes it believes are justified are cigarette taxes and sweat taxes on a working person’s labor. Both of these taxes are highly regressive, which is of course good for Republicans since they penalize people who don’t vote for them anyway. Meanwhile, slippery , insincere, and dubious arguments about “double taxation” are made to justify revoking inheritance taxes and stock dividend taxes at the same time as the income tax burden on those in the top brackets continues to freefall in the race to the bottom “we need to be competitive” mindset that will only accelerate the pace towards our inevitable national bankruptcy.

    I wouldn’t throw out an accusation such as this without just cause, but in this case, it’s entirely true. Conservative spend-and-borrowers and their legion of gluttonous disciples pose a greater threat to the vitality of America than either Communism, Al-Qaida or Iraq ever did.

  2. It’s not just the rich who invest anymore. The majority of Americans are now invested in the market in some form or another, through stocks, bonds, funds, or their 401(k). The Democrat’s constant class warfare of the "rich" versus the "working people" is a false dichotomy. There are a lot of "working people" who would benefit from ending unnecessary and overly complicated parts of the US tax code such as dividend taxes and the AMT.

    Working families benefit from tax cuts far more than they benefit from increasing spending on government programs that do little to help the working poor. The best way to reduce poverty is to create jobs. The best way to create jobs is to stimulate the economy. The best way to stimulate the economy is by reducing barriers to investment.

    99% of employers are small businesses. They employ 50% of the workforce and are responsible for two thirds of the new jobs in this country.* Those small businessmen are the ones who benefit the most from reducing barriers to the kind of investments that can grow their business. They are the ones who can lift the economy, create jobs, and expand benefits.

    Quite frankly, I’m wondering if the Democrats aren’t deliberately keeping people in poverty to expand their own voter base. After all, the people who tend to lift themselves into better conditions are the ones who are likely to vote Republican.

    * Source:

  3. “There are a lot of “working people” who would benefit from ending unnecessary and overly complicated parts of the US tax code such as dividend taxes and the AMT.”

    Fine. Gone. How do you plan to replace the lost money? Exactly.

  4. Easy. The economy grows. Revenues go up. People move up to higher tax brackets and off of government programs.

    Growth = tax revenue. (Which is why JFK made an across the board tax cut in 1961 and saw increased revenue growth, and is the same reason that government revenue increased throughout the 80s as well.)

  5. All of your premises are based on textbook theories offered by Milton Friedman and University of Chicago economic policy stooges. History and human nature have a nearly flawless record of deeming your theories unworkable when applied in the real world. An ex-Governor of Mississippi recently said that if low taxes and low spending were the key to a great state, his state would be one of the best in the nation. Likewise, a state like Minnesota should be a vast wasteland of empty storefronts according to your ideology, with thousands of oppressed entrepreneurs fleeing the state to get the taxation boot off of their necks. In fact, Minnesota’s above-average tax rates have actually produced one of the most impressive upwardly mobile economies in the nation over the past few decades, much as we take our success for granted now as we believe real success comes from “being more like South Dakota.”

    Yes, it’s not just the rich who invest anymore, but a tax cut on stock dividends would put extremely little into the pockets of the lowest three quintiles on the income scale. Whatever investments they have are not substantial enough to put the kind of money into their pockets that will seriously boost their confidence as consumers, which IS what drives economic recovery.

    And don’t you ever get tired of accusing people who simply talk about the poor in this country of getting a raw deal as instigating “class warfare”? The cost of government will always increase and somebody needs to pay the bills. When the top tax rate declines by 70% in a 50-year period, that means that somebody else is picking up that slack. So far, it’s been primarily future generations who will have to pay for their parents’ tax cuts, but the coffers have been at least partially filled with a variety of clever cuts on itemized deductions for working people on the income tax form instigated by the Reagan administration, along with regressive excise taxes that will only swell further as state and federal governments desperately search for tiny puddles of potential revenue to soak dry and redistribute to the pockets of the wealthy. The insipid GOP term “redistribution of income” has now effectively been reversed. Working people now pay more taxes to redistribute to the wealthy.

    Working people get NOTHING from tax cuts. Whatever scraps are thrown their way when tax cuts become law is cancelled out by a variety of factors…the long-term debt tax, the regressive excise taxes that increase to fill budgetary holes caused by the tax cut, and the fact that a political culture that embraces tax cuts almost always also embraces other dysfunctional capitalist lawlessness that makes it easier for companies to either import migrant workers to suppress wage levels or to export their jobs to the Third World. I am from a working class family very representative of the financial meltdown of the 1980’s when your theories were put into practice most recently.

    In regards to your laughable and frequently misused JFK=supply sider analogy, I’ll make the same deal with you and I do other conservatives who make that ridiculous comparison. If you agree to help take us back to the JFK era of a 72% top tax rate and 44% labor union affiliation by workers, I’ll be more than happy to call him Reagan’s “supply-side mentor”.

    I’m short on time here, but I will rip apart your “Democrats want keep people poor” slander when later on in another post.

  6. The difference between the Democratic and the Republican proposals for tax cuts amount to 1.4% of the $27 trillion federal budget over the next few years. (The President’s plan calls for $726 billion over ten years while the DNC wants that to only be $350 billion.)

    There’s more than 1.4% of the federal budget that goes to waste, abuse, fraud, and pork. Rather than asking the nation to tighten their fiscal belts, it’s time Congress did its part.

  7. Any tax cut at this time would be a despicable lapse of judgment and ethics. All the Democrats can be counted on for these days is to be slightly less fiscally irresponsible than Republicans.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.