Must have been at a time when tax rates were Very High. In such a situation, cutting taxes significantly would naturally make many a potential entrepreneur see worth their whiles to actually go into business.
When tax rates are as low as today, and with crazy deductions before these rates are applied, tax cuts is a free income hike for no extra effort! and get lapped up in that sense. No extra employment created to return the favor - that's just not how Capitalism or Entrepreneurship or Corporate Executivedom operates. They are not even expected or supposed to function like that - return the favor: whazzat!?
For today's World, how about this for an idea:
A Standard Deduction as high as half the Median Income.
Most itemized deductions taken off.
Professional income earned in S Corps gets no additional deductions, made identical to salary income.
Tax credits, deductions related to children retained.
Most importantly, tax rates at 0.5, 1.5, 4.5 times the going unemployment rate, subject to caps, to support reasonable unemployment benefits in addition to public goods.
Higher Unemployment means higher taxes, with a pay-as-you-go Govt."In a recession, we cut taxes" is old hat from another spacetime which exists no more.
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G'morning, Ohm.
ReplyDeleteWhen did this meme enter our heads that reducing tax rates when there is unemployment induces employment growth?
1976, apparently. Have you seen The Two Santa Claus Theory in the Wikipedia entry on Jude Wanniski?
The whole thing is a political strategy. Not economics at all.
Good post.
Thanks Art!
ReplyDeleteWasn't aware of the 'Two Santa Claus' expression. Indeed beyond a point the tax cut Santa has the same effect on fiscal numbers as the Spend Santa and no improvement to employment!
Best, Ohm.