Rush Limbaugh believes that we should cut the corporate tax rate dramatically, or even eliminate it for a year in order to stimulate the economy. He also contends that "Recessions will end on their own if they're left alone. What can make the recession worse is the wrong kind of government intervention." He is quite right about both of these statements, but there's a small problem with what he is suggesting, namely he doesn't explain the implications of the ideas.
"Recessions will end on their own if they're left alone. What can make the recession worse is the wrong kind of government intervention." As i said above this is true, to a certain extent. Economies naturally go through a cycle of growth and contraction. This happens, as far as i understand it, because the estimated worth of stocks, cash, and other property grows beyond a sustainable level and is corrected for by a recession which in turn leads to a growth period and so on. The problem with Rush's analysis is that this doesn't occur on a spreadsheet. People loose jobs over these things; poor families slide deeper into a hole that no amount of boom will help. The reason a government intervenes is to decrease the amplitude of this prosperity wave. He seems to be opposed to any government action that is not tax cuts, but not for that poor family. He wants cuts for the wealthy, and not the kind that can afford a nice house and a vacation. He's really interested in the wealthy that have the cash to hire a personal ball massager. Which brings us to the next point.
Corporate tax cuts. The idea behind this is that the corporations that receive the tax cut (read: don't contribute to things like hospitals, roads, schools, etc.) will use this extra income to hire more employees or raise wages. Well, they would certainly do the later, for the upper management at least. It would likely work like a bonus. The idea behind the bonus is that if you contributed to greater profits while simultaneously not being a low level employee, you deserve a share of said profits. So lets say that workers are encouraged to work overtime to fill a demand in the market. They may very well receive time and a half. As a result, the months pay may increase enough to splurge on that fancy new 32 inch tv, or even pay debts! On the other hand, when it comes to bonuses there's no need to work more. There's even no need to increase profits, as shown by the fact that companies are still giving them out despite having been rescued by public bailout. Nope, in the world of CEOs you get a bonus in order to by that new golden toilet based on how you successfully mananged to simultaneously lay waste to the worlds economy and get billions of public funds anyway.
How is it even possible to say that corporate tax cuts are appropriate when they already owe so much to the tax payer without having everyone laugh in your face?
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First -- I wonder why people would take economic advice from a college dropout with no economic background knowledge.
ReplyDeleteSecond -- this article certainly presents that Rush is a fantastic writer, appealing to bipartisanship and judging his plan on facts. What he is missing however, is that the plan is conflicting. Supply-side and Keynesian economics do not walk hand-in-hand. If you cut taxes, the government spends money it doesn't have, going further into debt. The formula doesn't go both ways, and the case that few see that is beginning to scare me.