Thursday, July 19, 2012

A simple explanation of Democratic and GOP tax concepts

As you can tell from the graph, the rise of he 1 per cent started with Ronald Reagan who slashed taxes below 30 per cent for top earning Americans. This trend continued when George HW bush was president.

When George W. Bush was president, he not only gave the one per cent a $64,000 a year tax cut. He also cut the short term capital gains tax to 15 per cent and suspended the estate tax.

The estate tax is an old tax established by Theodore. Roosevelt, a Republican president.

So three Republican presidents undid the tax reforms of FDR that weakened the middle calls. Many middle class teachers, firemen and police have lost heir jobs because the tax base was reduced.

In addition, the economy has suffered because the middle calls is the consumer class and when the middle class is weakened, businesses lose customers. 

Supply side economic might be a workable economic if it was oriented toward the middle calls. Giving the most affluent Americans huge tax breaks is counter-intuitive and simply doesn't work.

This is because the wealthy person may bank rather than spend the tax rebate or purchase gold and put it in a safe deposit box. The affluent could purchase stocks and bonds but this is an indirect way of stimulating the economy.

A direct grant or payment like food stamps or unemployment compensation gets more bang for the Federal tax buck and has a multiplier effect of the federal dollars because the recipient spends the money and rolls it back into the economy.

The following paragraph is verbatim form Wikipedia:

In congressional testimony given in July 2008, Mark Zandi, chief economist for Moody's, provided estimates of the one-year multiplier effect for several fiscal policy options. 

The multipliers showed that any form of increased government spending would have more of a multiplier effect than any form of tax cuts. 

The most effective policy, a temporary increase in food stamps, had an estimated multiplier of 1.73. 

The lowest multiplier for a spending increase was general aid to state  governments, 1.36. 

Among tax cuts, multipliers ranged from 1.29 for a payroll tax holiday down to 0.27 for accelerated depreciation

Making the Bush tax cuts permanent had the second-lowest multiplier, 0.29. Refundable lump-sum tax rebates, the policy used in the Economic Stimulus Act of 2008, had the second-largest multiplier for a tax cut, 1.26.

Obama's tax policies are based upon Keynesian economics and Mark Zandi's testimony. 

Republican tax policies are based on GOP ideology and unproven economic assumptions. 



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