Sunday, February 01, 2009

Republicans' tax cut rhetoric is misplaced

After hearing so many Republican ideologues spouting their "tax cuts are always the solution for stimulus" rhetoric, I want to scream. Or maybe cry.

Perhaps there are other economic situations where tax cuts might be the way to go. This is not one of them, and it doesn't take an economist to explain it.

  1. The reason why tax cuts could stimulate the economy is if they are spent in our economy.
  2. In an uncertain economic climate such as ours, with threats of layoffs, increasing product prices, contracting lending, and overall uncertainty, people are saving more and spending less. According to the AP:
    On Friday, the government reported Americans' savings rate, rose to 2.9 percent in the last three months of 2008. That's up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.

  3. Considering the economic climate, the tax cuts that the Republicans say are what is needed to stimulate the economy (which already make up about 40% of the package) are more likely to be saved or used to pay off debt than spent, and paying off debt is the same as saving in terms of economic impact.
  4. In order to increase spending in a meaningful way, we have to address the problem of income: namely, that more and more Americans are losing theirs.
What's troubling as well is the recent Rasmussen Reports survey that says "Forty-seven percent (47%) say tax cuts will do more to stimulate the economy than new government programs while 32% take the opposite view." I wonder where these perceptions on the function of tax cuts comes from, and why so many think they do more for the economy. One thing that candidate Obama was so good at was speaking clearly to the American people. What President Obama needs to do is to explain exactly why what is needed right now are not drastic tax cuts and why government spending is so important for economic recovery.

Further, the tax cuts proposed will cost us $300 billion, but will give working adults only $500 per year each. That's a huge chuck of national debt for a sum that will not will not mean all that much to struggling families and could be spent more productively as a whole rather than in small parts that are more likely to be saved than spent.

Something else is also bothering me with the whole tax cuts so people can spend rhetoric. Quite frankly, I'm glad Americans are saving more, spending less, paying cash, joining co-ops, reusing goods, etc. As a former financial advisor, these are all good, healthy habits to strengthen one's present and future financial security, not to mention the non-monetary benefits (i.e. environmental). As a cultural critic, they are also ways strengthen one's connection to one's community and develop better interpersonal relationships that have been somewhat thwarted by technology. Perhaps people will begin to reevaluate their drive to consume and will look more toward quality time with family and friends, volunteering, intellectual pursuits, and enjoying the environment. I hope out of this crisis, people will develop better habits, that we will have a more critical eye toward unregulated capitalism, that we will understand the need for social services, and that consumption won't have such a stronghold in our lives. For these reasons, I hope we all change our consumption habits permanently.

This hope, however, is a catch-22, because as we've seen, our economy depends so greatly on American spending money on stuff. But on a structural level, an American economy propagated so much by consumer spending is an unsustainable one, not to mention an undesirable one in my book. So economic stimulus needs to take place with this in mind--and clearly, the Republicans' tired rhetoric of tax cuts so people will spend is one that exists in the paradigm of
a consumption-dependent economy, the very paradigm we need to work our way out of.

(Cross-posted to Speak Truth to Power)

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