In the last debate, Scott Brown said several times that he opposes increasing taxes on anyone, because taxes take money out of the economy and we shouldn’t do that during a recession. At one point he actually said that we shouldn’t raise taxes when we are in the midst of a three and a half year recession, which makes me think he doesn’t even know the definition of a recession, but that’s beside the point. My question is this: do tax increases remove money from the economy, or do tax cuts do so?
First, has Scott Brown ever studied any history? Does he not know of a law passed in 1932, signed into law by Herbert Hoover, called the Revenue Act of 1932?
The Revenue Act of 1932 (June 6, 1932, ch. 209, 47 Stat. 169) raised United States tax rates across the board, with the rate on top incomes rising from 25 percent to 63 percent. The estate tax was doubled and corporate taxes were raised by almost 15 percent.
The provisions of the act applied to the taxable year of 1932 and all subsequent taxable years.
This tax hike enabled the subsequent spending on the WPA and the other economically stimulative activities which pulled the nation out of the great depression. It works like this: if the US government increases taxes, the money flows into the general fund and is spent on the various things the government spends money on – infrastructure, education, etc. All of those activities are economically stimulative. When I earn a few dollars on my job, I pay my bills and purchase the goods and services I need, and that money becomes income to someone else, who then pays his bills and purchases the goods and services he needs, and so on, and son, and so on…
Tax cuts, on the other hand, do very little to stimulate the economy. None other than Moody’s Financial estimates the stimulative effect of tax cuts at $1.02 per $1.00 of cuts, while infrastructure spending clocks in at a healthy $1.59 per $1.00 spent.
Beyond that, what happens when rich folks get a tax cut – does it really trickle down? I’d remind you all of Amberpaw’s excellent post from a few months ago covering the $32 trillion currently languishing offshore out of various national economies:
Clearly, Scott Brown’s tax argument is nonsense. Now get out there and talk to your neighbors – elect Elizabeth Warren!