Tax Cuts as a Way of Stimulating the Economy

In the 1960’s, if tax cuts to businesses, cuts on capital gains taxes, cuts on higher income tax rates, and credits to provide incentives to businesses had been offered as a solution to correct a recession, I would have been open to it. And, if it could be offered now, strictly for small business, I would support it as part of a stimulus package. But, the last 40 years of watching how big business operates has soured me on that approach for them.

We have a big bank crisis that in large measure came about because of sub-prime lending practices in the real estate sector. This foolish, ill advised practice developed partly because of over-zealous self-interest and the willingness to take risk to satisfy greed. Both political parties should share in the blame; but, it became a serious crisis over the last 8 years when deregulation was encouraged, regulators were unwilling to enforce the rules that remained, and government failed to keep up with new ways invented by hedge fund managers and big banks to make huge profits by taking unacceptable risks with other peoples money.

In response to the banking crisis, a bail-out was devised to get money moving again - some $350B worth. What did the big banks do with this money? Most sat on it, gave bonuses with it, bought other banks with it, had extravagant conferences and still refused to get money moving once again. In addition, they have been using a foreign visa loophole to bring foreign employees in, while laying off their American employees. So much for the good will and willingness of the big banks to do their part in correcting the crisis.

American manufacturing sector didn’t do us any favors either. For years there has been a major exodus of manufacturing to foreign countries which has resulted in turning the Upper Midwest into a “Rust Belt”. This has resulted in a loss of American jobs, a declining real income level for American workers added to a serious negative trade balance. But, it was a win-win program for these corporations because they were exempt from paying taxes on the profits they gained from these ventures.

Then, we have the example of the big three auto manufacturers. They took a seemingly entrenched competitive advantage of only a few years ago and squandered it with poor management while blaming it on their workers who had no choice but to build what they were told to build even if it didn’t sell. Then, they came flying into Washington in their private jets to ask for bail-out money.

We’ve had years and years of farm programs that provide subsidies of all shapes and types to ostensibly save the family farm and improve production in agriculture. The result is that big farmers (many of which aren’t even farmers) get huge checks from the government while true family farmers struggle to stay viable by supplementing their income with jobs in town.

We’ve had producers and distributors selling knowingly sub-standard and unsafe products like the recent peanut butter crisis, tainted beef that Far Eastern countries like Japan refused to buy, toys with lead paint, and even substandard military hardware for our own troops in Iraq and Afghanistan to name a few.

We have oil companies making record profits – Exon Mobile made $45B in one year – under conditions that appear to be manipulative rather than supply and demand. Then, when the move is underfoot to seek alternative sources of energy they turn their lobbyists loose to follow a multi-faceted PR campaign of obstruction on one hand and on the other hand a plea to the government for subsidies and tax breaks for research and capital expenditures to build these alternative sources.

When money dried up and demand for products went “South”, what is the first thing these “benevolent” corporate leaders do – they lay off workers by the millions. Are these corporate leaders sharing in the pain? I don’t think so! We could still support a long running TV program on the “rich and famous” using these corporate leaders as the basis. The title might have to be “Former head" of Lehman Brothers, General Motors, etc.

When the government steps in to relieve the pain with a stimulus package to help get the economy going again, what is Republican Party's and big business response? They object to it by complaining that it is only a spending program. Well, no duh! That’s what a stimulus package is – spending money to try and pump up the economy. If we follow their alternative plan of giving tax breaks to the wealthy, cut business taxes, cut capital gains taxes, and provide tax credits to business the end result will be the same as a stimulus package – large deficits and increased national debt. It is simply a different pocket for money to go into. They’ve even suggested temporarily suspending the payroll tax. Do they really think that people saddled with massive consumer debt are going to go out and spend, spend? People are going to treat it just like they did the rebate a while back – they are going to save it for a “rainy day” if they can and more likely pay down debt, which will help them personally along with those that hold that debt, but it won’t stimulate the economy. If they do spend some of it, it will probably be spent on manufactured goods from foreign countries like China. Who else manufactures consumer products anymore?

At some point these wealthy “fat cats” and their elected representatives will have to realize that they suffer from a credibility gap. They don’t pass the “giggle test” when they say, "trust us, we will use these tax cuts to invest in our businesses which will “trickle down” to job creation." I realize that the above diatribe paints American business with too broad a brush. There are many responsible large corporations who do it right and have the best interest of their customers, their employees, and the country as a whole in mind. But, for many of the public, it is hard “seeing the fire through the smoke.” There is a general lack of confidence in the business community. The last election proves that. Much of the American public does not deal with and may not understand high finance and government economic policy – they are too busy working and raising their families. But, they aren’t stupid, and you can only “kick them in the teeth” so many times and they are going to say enough is enough. We might be there.