Feet on the ground – head in the clouds.

Who should get tax cuts and why?

with 2 comments

I keep hearing bullet points from the campaign surrogates and media about what each of the candidates plans on doing with taxes.  In the last few days, I’ve actually gotten the 3rd grade synopsis — as opposed to the preschooler treatment — that Senator McCain is a “top down” guy, while Barack Obama prefers “bottom up” measures.  Although the media is beginning to realize adults watch their programs, the going is slow.  

First we bailed out Bear Stearns and JP Morgan-Chase, then Fannie Mae and Freddie Mac.  Next came the failure of Lehman Brothers and the emergency buyout of Merrill Lynch by Bank of America.  Then a government loan was needed to maintain AIG and at this point I stop worrying about the details.  It’s clear the government is in the bailout business, even with the holdout to Lehman Brothers.  It’s interesting to compare with how little was done for millions of American homeowners facing foreclosure.

This brings me back to the “top down” vs. “bottom up” argument.  Bailing out the banks is an example of the new “top down” philosophy.  If we stepped in to ensure that working families stay in their homes, that would be a good example of a “bottom up” philosophy.  But really, that simplification I’m seeing in the media misses the point completely.

Why would we cut taxes?  

If you think about the goal of tax cuts — besides the obvious point that officials who cut taxes end up being liked and returned to office 90% of the time — it is to stimulate the economy.  How exactly?  By people spending that money.  I know President Bush gets ridiculed for saying we needed to go out and buy things after 9/11, but he wasn’t all that far off.  He missed some key points that rendered his plan counterproductive, which is evidenced by what you see today.

Cutting taxes to stimulate the economy is based on the circular flow of money, or the paper flow if you’re in KC, Mo.  The idea relies on spending because if I spend my tax cut to buy a new MacBook, the demand for MacBooks goes up (not because of me, but because I’m not alone in a nation of 300 million) as does demand for work in Apple Stores and Best Buy.  This is the “creating jobs” part of tax cuts.  We also could assess that manufacturing jobs could be created, but that assumes we’re manufacturing the product in the United States.  We’re not an industrial economy anymore, we’re a service-based economy.  So we don’t get the full job-creating effect of tax cuts in most cases.  

Maybe it’s not a computer, but think about what you might buy with a $2000 tax cut. Is it manufactured here in the US?  Would you just pay down existing bills? That’s breaking even with the tax cut; few new jobs, sparse flow of money. The problem with President Bush telling us to go spend money, was that we weren’t really getting the bulk of the tax cuts and banks were so deregulated that credit was dispensed recklessly giving the illusion that we had money. Excessive debtors are as culpable, but the point of deregulation was to trap more people.  Loans handed out at 50% or greater is a crime against humanity and de facto slavery to many Americans. The Internets Celebrities have a great video on how slimy the financial industry acts in America’s poorest neighborhoods.

Continuing on with the flow of money, when we drive up business in places they open more jobs giving more people opportunities to work and make money — where they would become a part (or a bigger part) of the circular flow.  An industry that would really be nice for Americans to flock to after a tax cut would be the Green energy industry.  How about spreading some solar panels?  Free energy, and possibly an income source.  It would be like living in Alaska without having to rape the land!

Who should get the tax cuts?

The “top down” crowd (Bush, McCain) likes to say that tax cuts going to corporations and wealthy Americans will stimulate business through investment, creating jobs and opportunities.  This is what is known as the “trickle-down effect”.  I don’t know about you, but when I’m looking to open floodgates, I don’t aim for a trickle.  

People like Barack Obama propose to cut taxes for the middle class, not corporations or the ultra-wealthy. When you cut taxes on people who don’t have large excess, chances are they will spend/invest/save it. This may not have all of the effect immediately, but even if I decide to pay down my balances, I’m going to be more able in the future to make purchases. When tax cuts go to corporations, however, there is no guarantee they will do anything viable for average Americans with the money.  Take a look at Big Oil, for example.  Record profits, the rich get richer and the middle-class shrinks.  

By cutting taxes on the middle-class, they are more enabled consumers.  They can then make the decisions for themselves about how the economy is stimulated.  Kind of like a democracy for the economy.  If you cut taxes for corporations and the ultra-wealthy, that’s basically an aristocracy for our economy.  And really, an aristocracy for our country.  Think about it:  90% of the wealth lies in the hands of less than 10% of Americans.

This is why we must vote for the people, vote against the aristocracy and return to the glory years of the 90s, when taxes were just right to keep everyone moving up. The tide was rising, so everyone benefitted. Over the last 8 years we’ve seen the tide so low that many Americans are finding out just how small the middle class really is today. If you woke up one morning and found yourself evicted from the middle class, foreclosed upon, you can thank President Bush, Senator McCain, Phil Gramm and the theory to which they subscribe. Stop expecting trickle down, make them beg for you to beam it up.


2 Responses

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  1. This pretty funny- I found your site like an hour ago. Don’t remember how I found it, but I like your stuff and we sound like we have a pretty similar outlook/interests. So I go back and add you to my blogroll, get distracted writing another post that popped into my head and forgot to get in touch with you.

    We both wrote up tax posts at the same time- that is weird.
    Check me out and see what you think. http://theavidpenguin.wordpress.com
    Im always looking to meet like-minded people. It’s hard to find people that know how to think hahaha


    September 18, 2008 at 10:00 am

  2. TAXANALYSTS.COM has a older chart on the differences of both McCain and Obama’s (Hillary)tax proposals.


    Like this one because a chart places it into prospective. Where McCain proposes to keep the current tax rates (Bush’s tax rates), reduce the federal corporate tax rate (Wal-Mart and Exxon anyone?), lets not forget “Tax Breaks for builders”, and as he says “I trust the markets and oppose subsidies…Yes, that means no ethanol subsidies. Lets not forget his advocacy for the maintenance of oil company tax breaks. The main argument for the supply side, voodoo economics is because it is supposed to create jobs and some how wealth will trickle down. But with factors including war and globalization it doesn’t work that way. And I haven’t even talked about health care yet.


    September 20, 2008 at 3:13 pm

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