Why Temporary Tax Cuts Are A Bad Idea
Economist Veronique de Rugy in USNews on why Eric Cantor's temporary tax cuts and temporary tax cuts in general are bad economics:
A temporary tax cut is precisely the sort of half-baked intervention that accomplishes little more than injecting even more uncertainty into an already murky economic situation. Reducing tax rates can help spur investment and job creation, but "temporary" tax cuts never have that effect precisely because producers and consumers know a change is coming soon.Do Republicans really believe that companies that benefit from the reform will invest and hire new employees based on a reduction in rate that may go away a year later? Shouldn't they have learned by now that temporary tax rebates, tax credits, and tax cuts don't work?
Take the Bush administration Tax Relief Act of 2001 and the Economic Stimulus Act of 2008, two similar packages with similar effects on the economy. Which is to say, not much. In 2008 the major component was sending $100 billion in cash to Americans so they would have more to spend and thus jumpstart the economy. It failed. People spent little if anything of the temporary rebate, and consumption did not recover. In fact, formal statistical work by Joel Slemrod, a professor of tax policy at the University of Michigan, has shown that rebates generally produce no statistically significant increase in consumption because of their temporary nature. The same is true with temporary tax cuts, and temporary anything for that matter.
In fact, it is their tendency to pass temporary tax cuts--shared by Democrats--that explains the uncertainty taxpayers face today.
De Rugy also makes a good point: What's with the kiss blown to small businesses? (Cantor's legislation backs lowering taxes for them 20 percent and the GOP also has a plan to reduce taxes for firms with fewer than 500 employees). How come a special interest group alone gets their taxes cut?
You can't polish a turd.
Throw out the tax code and implement a Fair/Flat tax for everyone. No loop holes.
Feebie at April 24, 2012 12:10 PM
You can't pay off political supporters with tax breaks with a fair (flat) tax code. Instead you have to make the linkage obvious, like Solyndra.
MarkD at April 24, 2012 12:51 PM
MarkD is right. The purpose of the tax code is two-fold; raise money for the government and to make it so complicated that there can be no accountability. Making government larger adds to the need for more taxes, the opportunity for more corruption, the ability to hide it and so politicians can have plausible deniability.
In this regard, the private sector is very similar. The larger the company, the more middle and upper management squander money and power and avoid taking responsibility for anything.
Joe at April 25, 2012 7:07 AM
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