Has anyone proven that tax cuts stimulate an economy and increase

[KlatooBNikto]

tax revenues?

[Burma Jones]

1. The Kennedy Tax Cut back in 1962 (I believe)

Otherwise, I don't think so.

[KlatooBNikto]

4. Does the nature of the tax cut matter? Is it more effective when it is

directed at the middle and lower income groups? That is, if it is consumption oriented rather than supply oriented as Bush has done?

[Warpy]

6. They all blame inflation on money in the hands of working folks.

They actually got away with that one in the 70s, as the oil shocks caused double digit inflation. Joe Moron actually bought the idea that inflation was happening because his union had won him a living wage!

However, the money pump has always worked from the bottom up. Poorer folks spend all the money they get their hands on, and that drives the need for increased goods and services, which drives employment. Without that need for goods and services, no rich man is going to employ extra people, no matter how big a tax break he gets.

We are about to experience the ultimate consequence of supply side economics, I'm afraid, since all the protections of the New Deal have been abolished. The marketplace is being choked off, and even discount stores are seeing lower profits. The middle class, which had conferred so much stability to the country, has been decreased to nearly nothing, as the working class has been beggared. The rich are in the final stage of their feeding frenzy in an attempt to garner enough wealth to ride out what's coming.

Reform will be reinstituted, and the wealthy will start building a coalition to overturn the reforms once the crisis has passed, and our grandchildren will probably have to fight the battle all over again.

[KlatooBNikto]

7. Klatoo's new economic dictum No.1: Money in the hands of the poor

and the middle class, bad;money in the hands of the rich, good.More money in the hands of the rich, even better.

[JHB]

16. I want some real facts before I accept that canard.

The tax cuts uber alles crowd always tosses that out, but never with any detailed analysis.

Checking rates over at http://taxpolicycenter.org/TaxFacts/tfdb/TFTemplate.cfm?topic3id=38 ,

(and keeping in mind the median income back then was ~$6500 ( http://www.census.gov/hhes/income/histinc/f05.html )), then the working and middle class got a break of ~2%, the upper middle a break of 3-5%, and the rich got from 6% up to 14% at the very top off. And they started off from very high and were cut to levels that are still far above what is in place today. Add to that the much lowere level of income disparity at that time, and you have a situation very different from that which we have today, so what may have been true then can't be relied upon to be true again.

[tom_paine]

2. No. However proof is not required for Totalitarian Regimes

such as the Imperial Family of Amerika. They just repeat the lie and it BECOMES 'truth'.

Actually, as Orwell correctly predicted, there is no such thing in Imperial Amerika as 'lies' or 'truth'.

No such thing at all. All there is is what Fuhrer and TV tell you.

[bemildred]

3. Kind of like starving to gain weight, isn't it?

It's telling that, throughout history, every other government
that wants to raise revenues raises taxes, but we are supposed
to believe that the opposite works.

[KlatooBNikto]

13. The biggest economic expansion in American history during the

Clinton years came after a tax increase that was implemented by Clinton.how can this be explained by the Supply Side Gurus?

[RUMMYisFROSTED]

5. Depends on the cut.

Suffice it to say, cuts for the wealthiest have historically left us with burgeoning debt and an upward transference of wealth.

[private_ryan]

8. hmmm

if you give it to the poor, you might get back a percentage in sales tax, income tax of the maker etc.

No doubt that "giving people more money" helps in investments, too bad the goverment needs taxes, and that the budget has to be balanced. :)

[whistle]

9. They don't it was good old classic Keynesian deficit spending....

...on military mobilization for Iraq War that jump started the economy. Now that the infusion of wasted dollars ended nearly two quarters ago, the economy has once again slowed to a crawl. The gigantic tax cuts for the wealthy, gave the ultra rich much needed cash to pay off debts and beef up their investment portfolios, but none of it helped stimulate economic growth. That took government fiscal spending in massive quantities. What Bush/reThugs choose to spend on had virtually no long lasting economic impact which is why we are right back where we were 20 months ago. Sorry, I have no link to back this up, I just know deep down inside that this is the case.

[calico1]

10. Tax cuts can stimulate the economy if

they are given to middle class and lower class people. The idea that giving tax cuts to the rich will stimulate the economy is ridiculous. Think about it. If Bill Gates wanted to buy a dozen Rolls Royces to give to friends and family, why, with all his billions would he wait for a tax cut to get them? He wouldn't because he can get them anytime, regardless. A few million more isn't going make him spend more because he's already got it. Rich people don't go on shopping sprees when they pay less taxes. On the other hand, a middle class or lower class worker who gets a windfall in the form of a tax cut will probably spend it. They will use the money to redo their kitchen, buy that new car they wanted, or whatever.

[Silverhair]

17. You are forgetting about the need for investments.

Unless somebody does some investing, NONE of that other economic activity will happen. And if you punish the investors, then why should they invest? You need BOTH investors rewarded, and spenders rewarded.

[KlatooBNikto]

19. Wouldn't the fact that large demand exists for a product or service

attract investments on its own if there is sufficient profit margins in that activity?

[calico1]

20. No I did not forget about investors.

That is important too of course. Your statement is correct. I was just pointing out that the middle class is more likely to spend the extra money than the already rich. I was just addressing that aspect of the tax cuts.

[JHB]

21. How is it "punishing investors" to focus a tax cut...

...to where it will help the overall economy most? Doesn't that IMPROVE investment opportunities?

But hey, getting favors from Congress is easier and more reliable than investing, isn't it?

[lawladyprof]

11. Powerful but Unused Progressive Income Tax Argument

Assuming what I learned all those years ago as an undergraduate has not been discredited.

Under the progressive income tax if your gross income rises, then your income tax rate also rises (example, someone earning $200,000 dollars a year might pay an overall fed. income tax rate of 25%, your marginal rate (on each new dollar earned is at 34%--this is the top rate or pretty close to it) if you earn less than $25,000 your overall tax rate might be 8% with a marginal tax rate of 10%).

So as your gross income rises your tax RATE rises too and your disposable income rises more slowly than your gross income, but the converse is also true. Your gross income falls more steeply/quickly than your disposal income because your tax rate falls more steeply than your gross income declines.

As my economics and history professors told me, all this means that the progressive income tax system itself works (and works automatically) to smooth out the ups and downs of the business cycle. Let's focus on the downward swings of the business cycle. If the income tax structure is properly progressive, then it, without any legislative tinkering (for example, extending unemployment benefits as happened in this latest downturn), in the aggregate holds up people's ability to purchase (demand). This "artificially" (from the income tax structure itself) maintained demand for goods and services tends to keep employers from laying off workers, thus aborting the downward spiral of an economic downturn.

I remember learning that that was why FDR made the income progressive or more progressive (you'll have to check with a history professor here to find out if the income tax was flat or flattish in the 1920s--but one thing for sure FDR made sure it was progressive/more progressive). He and his ec. advisors believed that a properly progressive income tax would have ameliorated the Crash of 1929.

Bringing it home to 2000-2004, assuming the basic theory hasn't been discredited, then one reason the economy can't get out of the doldrums, especially in terms of hiring is that we have flattened the tax structure too much and Bush's income tax cuts have flattened it still more.

A couple of other tax/income tax observations.
National sales tax--these work in Europe in part because they still have a progressive income tax system plus confiscatory estate taxes. Bush has eliminated (temporarily but trying to make permanent the elimination of the estate tax).

One reason our tax structure has gotten flatter is that payroll taxes (FICA/social security and Medicare) take a bigger bite proportionally from the average person's paycheck. Fee for service also tends to flatten the tax structure.
Back in the day when state governments funded more of higher ed. that money came through a progressive tax structure (state taxes being tied to your fed. income tax), now state governments fund a smaller proportion of univ. budgets so the shortfall is made up by tuition increases. Those increases fall equally on everyone regardless of his or her ability to pay. If the state funded a bigger proportion of public higher ed. budgets as it used to, then while you might have tuition increases they would be smaller/come less frequently. Another example, would be supplies for K12 students, when state funded they are tied to income level when parents have to pay for what used to be supplied by school districts. . . .

[TrogL]

18. Excellent analysis

Welcome to DU.

If you're interested in this kind of thing, you might want to check out the Economics forum and the Daily Stock Market Watch (in Late Breaking News)

[lawladyprof]

22. Why thank you

TrogL. Sadly, my economics days are long behind me, but that explanation made a powerful impression on me (must have done to have lasted 30+ years). What is frustrating is that no one is using/explaining it although I believe it would increase support for the progressive income tax system. The too-whom-much-is-given-much-is-expected argument just doesn't resonate, and you can get bogged down in the investment generates jobs argument. I have never seen or heard a liberal/progressive politician use it (the properly progressive tax structure ameliorates ec. downturns explanation).

[leesa]

12. Not if you give it to the rich. They already don't pay their taxes and

they just squirrel away the cash. I guess Switzerland and the Caymans benefit from the interest. The rich are global, they don't give a rats ass about American economics. They will pilfer from this country until it's all gone.

[KharmaTrain]

14. The Tax Cut Myth...Offset By Higher Oil Prices

Talk about a backdoor benefit for some Texas Rangers. Notice how the "tax cuts" came right at the time the price of oil and gas shot up at least 25%??? I sure did. Of course the rich, who stocked away the biggest rebates didn't pay that much more to fuel their boats and hummers compared to what average people had to endure in keeping their cars running and homes heated.

Next...many who "qualified" for the rebates and cuts later found out they didn't really qualify once children, mortgage and other deductions are figured in. Add that whammy to the hit state and local governments took as their income bases were slashed and they had to scramble to either cut services or raise taxes locally. Just shuffled things from one pocket to another...and there are those who have put off the mounting defecits that will further crunch the non-federal level.

Lastly, cutting income taxes have zero to do with job creation...unless you're talking about maids and landscapers. Cutting small business rates or creating a more competitive and open domestic economy does create jobs, but the antithesis of what this regime stands for. The money I don't have to pay in taxes goes in my pocket...and generally right into the bank where it's making money for even richer people.

But the sheeple will think how great it is that Bunnypants is cutting taxes. Yes, they believe in free lunches.

[w4rma]

15. There *must* be a money sink placed on the ultra-wealthy.

Otherwise they will keep consolidating their power, exponentially at the cost to the rest of us.