Thursday, August 5, 2010

Fallacy: tax cuts increase deficit

The latest meme from conservative Republicans is that allowing the cessation of the Bush tax cuts for the rich will somehow increase the federal deficit.

According to this argument,  tax cuts stimulate the economy and thus, in fact, produce more revenue for the government.  Of course, little evidence is put forth to support this contention.

The whole idea rests on two main logical fallacies.  First is the contention that the money not collected by the Bush tax cuts will be spent by taxpayers in the fiscal year.  At best, this suggestion is speculative.  Indeed, consumers may rather decide to save the money due to the still uncertain economy.

The other suggestion, which is just outright erroneous, is that government taxes do not contribute to the economy.  It is almost as if the government is collecting taxes and hiding the money away in a cookie jar.

If fact, all taxes, every penny collected is spent during the related fiscal year.  The money is spent either on government projects and infrastructure in the process creating or maintaining government jobs.  Or it is spent hiring private contractors to perform work for the government.

Not only does this money get recycled immediately into the private economy, but in the process it allows the federal government to perform necessary services.  If you do not think these services are necessary, then think of commuting to work on a freeway full of pot holes, or over bridges in danger of collapsing. 

Even many corporations depend heavily on government contracts that are funded by tax dollars.

Now, as an example, let's take the huge government mobilization during World War II when the country had to send massive numbers of military personnel and equipment to two fronts overseas.  How did they raise the money to pay for this unprecedented challenge?   According to conservative Republicans, the government should have cut taxes to a bare minimum to stimulate the economy and send revenues sky high.

However, the fact is that Washington increased taxes to levels far higher than they are today.  And the economy did not shrink, but grew instead.  Indeed, taxes at rates much higher than we see today, were maintained even after the war up until the Reagan era.

The period was one of great stability with only mild economic downturns.  In contrast, after the Bush tax cuts that sent the tax rate to the lowest level since just before the Great Depression, we see that the country plummeted into its own Great Recession, the worse downturn since the 1930s.

Barack Obama ...
Thu Aug 5, 11:56 AM ET

1 comment:

Raul said...

Nice info thanks =)

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