Posted on

Federal tax cuts make absolutely no sense

It’s time Congress goes to economic confession. ‘Forgive us what Bush passes, for we still spend.’ Bush’s 10-year, $350-billion victory for hard-working Americans, also a massive and ill-advised tax cut, was constructed without the nation’s best interests at heart.
Maybe it was an effort to buy popularity among the masses. Perhaps it was a targeted effort to line the pockets of the wealthiest Americans ‘ middle tax rates will drop by two percent while the top rate will drop by 3.6 percent, retroactive to Jan. 1.
Normally, a tax cut sounds like a good idea, but not when it creates a colossal budget deficit while almost every state is in dire need of federal aid. And didn’t Bush try the same strategy in 2001? That infusion did little, if anything, to nudge the economy along. Since then, more than 2 million jobs have been lost.
While we, the people, receive $330 billion in cuts, the states will be receiving only $20 billion in aid. Indiana will get about $374.8 million.
The bad news is that Indiana is still suffering from a structural budget deficit of more than $1.3 billion and has lost more manufacturing jobs during the last two years than any other state.
The good news is that Oprah Winfrey will get a $7 million tax cut, give or take a few thousand.
In an NBC News-Wall Street Journal poll, 29 percent of Americans agreed that the tax cuts were the best way to get the economy back on track, but 64 percent think there are better ways.
The new package is complex, but the basic philosophy sounds a lot like Reaganomics. Americans are being given more money in the hopes that they will spend, invest, and, along the way, stimulate the economy, thereby creating more tax revenue in the near future.
But that doesn’t work.
Unemployment is high, and the stock market has been less than inspiring. If anything, Americans have plenty of motivation to not spend a penny more than necessary. Each time Americans choose to save their money, Bush’s plan will have been dealt a setback.
Another flaw is that this type of plan suffers heavily from diminishing returns.
If the government gives back $1,000 in taxes, for example, the money has to be spent many times so it can be taxed multiple times during the course of the year, or else the government loses more than it benefits from the cut.
So, if it is a proven fact that Bush’s plan is doomed to fail, why implement it?
Because, while governors struggle to stretch tax revenue that should have been supplemented by federal aid, Bush will look like he is winning victories for hard-working Americans. Or at least, that’s what he is banking on, but that plan too may yield diminishing returns.