Tax Cuts for Every Occasion

The other night on Lark St., I was chatting (yelling back and forth with) two (ugh) Republicans, and ridiculing that the basic Republican solution to any problem is to cut taxes. Today, Devilstower on DKos has more on the subject:

In 1959, Mattel introduced a doll named "Chatty Cathy." Pull Cathy's string, and she could say eleven different things. That's ten more things than Republicans have to say about the economy.

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No matter what the situation, Republicans have only one response. In the 1980s, the first pass at Reaganomics left the US with a crippling debt that took a decade to get under control. Then, before a sensible policy had time to repair the excesses of the 80s, Bush arrived to double-down on the damage. Again they showered gifts on the rich and poured funds into the coffers of corporations where executives rewarded themselves with bonuses that would make Scrooge McDuck blush. In the meantime, the middle class was not seeing a wave of new jobs or an increase in salary. Because, as we saw in the 1980s and have demonstrated conclusively over the last seven years Reaganomics is a lie. Cutting taxes at the top and reducing regulation benefits only the top of the corporate economy. There is no trickle down, because greed expands to absorb any excess.

The part in bold is the money quote -- when you hand corporations extra money, they either give it to the executives or divvy it up among the shareholders. It does not create jobs. Why? For one, there are no repercussions for not investing the money, and second, if there's no extra demand for your product, why create extra supply just because you have the money?

On the other side, if a corporation can demonstrate increased demand, a bank will be more than happy to give the corporation a loan... and in that case, the corporation will have to pay back the loan, so it has to invest in increasing the supply to match the demand.

Smart government incentives, ones which require corporations to make certain investments, can work too, if there are requirements and accountability built in.

The one part I did agree with my Republican drinking colleagues about is what happens when you increase taxes on corporations -- their knee-jerk Randian response is to cut jobs, almost (maybe more than that) just to spite the government. Creating jobs are their last priority when they get free money, and cutting them are among the first when they lose it, unless demand is hot.

So, what is the real solution to our economic problems? Probably doing things to ignite demand (though that has its own issues), but some areas of the economy are so overheated, like real estate, that it's going to be a very steep fall to bring demand pricing up to equilibrium with supply pricing.

It's just very clear to me that cutting taxes by $150 billion, particularly taxes on corporations and the wealthy, is harmful in an environment where we have nearly a trillion dollars in debt and the dollar is so weak.

I don't even think giving people a few hundred dollars in rebates will help; it won't go towards consumption... people are up to their ears in debt after the last few years and they'll just take that money to pay down mortgages, loans, and credit cards. Lowering interest rates is problematic too, as encouraging people to borrow in order to stimulate the economy is what caused a large portion of the mess in the first place.

So what is the solution? Damned if I know, I'm not an economist. But Ari is. So I'm going to try to get him to weigh in.

Labels: Economy, Republican Party

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