Cutting Taxes and Increasing Spending are not Opposite Ideas (!)

[cthulu2016]

In fiscal terms, Cutting Taxes and Raising Spending are variants of the same idea.

Republicans say that increasing spending does not stimulate the economy but cutting taxes does.

Some on the left say that increasing spending does stimulate the economy, but that cutting taxes does not.

Both are wrong. The Republicans are more wrong for some practical reasons, but both views that see deficit spending and deficit-funded tax-cutting as entirely different things are wrong.

Cutting taxes on the rich and creating the WPA are two ideas in the same Venn diagram bubble. Not equally good ideas, but related ideas—increase disposable cash in the economy by the mechanism of the federal government borrowing money.

Think of the 2008 stimulus bill -- somewhere around $800 billion as a mix of tax cuts and spending. Let's say that instead we just had done $2.4 trillion of tax cuts. That would have actually been better for the economy then and now than the stimulus bill we did pass. Say we just didn't collect taxes on income under $80,000 for two years. (That's a for instance -- I don't know what level would equal $2.4 trillion of revenue.)

The problem is that it would not have been three times better. Fixing the economy with tax cuts would have been very inefficient. Why add $2.4 trillion to the debt if the same economic effect could be achieved with, say, $1.2 trillion in smart new spending, adding only half as much to the debt for the same "bang"?

Tax cuts DO stimulate the economy. Even tax cuts for the rich stimulate the economy, though less and less as the beneficiaries are richer and richer.

But tax cuts tend to be less efficient, and tax cuts for the rich are the least efficient of all.

Fixing X amount of slow growth with tax cuts will increase the debt more than fixing X amount of slow growth with spending.

Spending offers a bigger economic bang for the deficit buck than tax cuts for the rich.

But even with that said, very little offers the same bang for the buck as the payroll tax holiday did. That tax cut did more for the economy than the same deficit money spent on fixing roads in a rich neighborhood that is not growing, for instance.

It is all about what tax cut and what spending, with spending generally being more efficient as stimulus.

[talkingmime]

1. They're quite compatible, but where the GOP wants to cut are areas that shouldn't be cut.

The military is flooded with programs they don't want but Congress does to line their own pockets through contractors. The F-35 is an excellent example of something that should go away.