REPUBLICAN TAX CUTS

[unlawflcombatnt]

REPUBLICAN TAX CUTS

Today I heard someone ask: "Why do Republicans cut taxes without cutting expenses?" I thought it was an excellent question, with no logical answer. Let me attempt to regurgitate their illogical answer, and explain why it's illogical.

Republicans claim their tax cuts will stimulate economic growth. In fact, they're doing the opposite. Cutting taxes on the top 2% is supposed to increase investment. But there's a catch to this "theory." There needs to be something to invest in. It's only benefit is to increase the SIZE of our industrial capacity. But current industrial capacity is under-utilized. Investment to increase the size of an already underutilized industrial capacity makes no sense. There's simply no current benefit to increasing its size. As such, there is no current benefit to increasing investment.

We need to increase the % UTILIZATION. Investment supposedly increases production. When it does, it does so by increasing industrial capacity size. It has no effect on percent utilization. No amount of investment will increase industrial capacity utilization rates. Only consumer DEMAND increases utilization.

In order for production to increase, there must be an increase in production DEMAND. No amount of investment will increase demand for production. As a result, much of this potential investment capital sits idle. It goes into overvaluation of the stock market, overvaluation of real estate, increased business "cash-on-hand" accounts, foreign bank accounts, CEO bonuses & salaries, stockholder dividends, and last, but not least, Republican campaign contributions.

Meanwhile, the inflationary effect of these tax cuts reduces spendable consumer income, reducing consumer spending. This REDUCES the very "production-demand" necessary to stimulate production, and reduces job growth for workers to provide that production. Thus, the top 2% tax cuts are not only unhelpful, they are detrimental. They slow economic growth. Their inflationary effect reduces inflation-adjusted consumer spending, which reduces the demand for production. Financial analysts have stated on many occasions that investment capital is plentiful at present. Consumer income is not. Consumer income limits consumer spending, and the production demand it creates. High-end tax cuts are not helpful at present, because increasing potential investment capital is of no benefit. It is NOT growing our economy. It's shrinking it, due to the inflationary reduction of "real" wages caused by these cuts.

It's worth mentioning here that CONSUMER SPENDING is 2/3 of economic activity. It's the largest component of the GDP equation, where GDP=ConsSpen+Invstmt+GovSpen+TradeBal.
It makes a lot more sense to try to increase consumer spending at present. It is a larger component than "Investment" capital, and it is in far shorter supply. We need to "change-the-course" back to fact-based economic reality, instead of "faith-based" economic mythology. Investment does NOT create jobs. But demand for production DOES create jobs.

unlawflcombatnt

EconomicPopulistCommentary

http://www.unlawflcombatnt.blogspot.com/
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Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

[snowbear]

1. Wow.. Why aren't YOU running for office?

We need you!!! :o :) :)

~~~~~~~~ :patriot:

[nothingshocksmeanymore]

2. Damn fine post!

I've long wondered who will buy all the crap corporate America wishes to sell when there are fewer consumers due to lack of funds.

[BillZBubb]

3. The Repugs would argue it differently.

They claim the tax cuts go to risk taking entrepreneurs. Those people will invest in cutting edge items, not the current industrial base. This will create new industries, requiring new tools, equipment and talent. Then Say's Law comes into effect, where supply encourages demand. Initial returns would be modest, but longer term the economy would get huge rewards.

Of course this line is bullshit. The rich will do with their money what they've always done: invest in the best risk/reward scenario they can find. Under economic dunces like the Chimperor, that means no risky venture investments. They're better off in REITs, offshore oil and gas investments, and currency swaps against the dollar--none of which help us.