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.
(Source: Wikipedia)
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!
The Federal government doesn’t require a balanced budget in any given year, and for good reason. When the economy is cooking, really humming along, it makes sense to cut services because fewer people need them. When the economy stinks, it makes sense to expand social services because more people need them.
There’s no question that government programs have a more stimulative effect than taxes — but because we need not balance our budget in any given year, your question is a bit strange, regarding federal taxes at least. To save your scroll button, My question is this: do tax increases remove money from the economy, or do tax cuts do so? Tax increases remove money from the economy. Tax cuts put more money in. Government spending increases put more money in the economy, government spending cuts remove it.
We should focus on the government spending side for two reasons. Firstly, government service spending directly helps those who need it most and government infrastructure spending helps us all more or less equally. Secondly, government spending has a more stimulative effect per dollar than tax cuts, so we get more economic bang for our buck.
…that any revenue raised by increasing taxes would be used to stimulate the economy, while most of the money spent on tax cuts ends up offshore, where it is actually removed from the economy. Sorry if it wasn’t clear.