The ongoing debate over tax relief has lost all integrity, like a favorite sweater long past its prime. Some believe that tax cuts increase the budget deficit while others suggest wealthy citizens have no moral obligation to share their bounty. Worthy positions indeed, but they are two mutually independent arguments, both valid, one having nothing to do with the other.
The recent attempt at supply side economics comes in the wake of an inauthentic evaluation of the Bush tax cuts and the consecration of vague ideals by the most committed. The Congressional Budget Office describes tax reduction as the least effective way to spur the economy and reduce unemployment, as they would only increase the GDP by 10 to 40 cents for each dollar spent. Moreover, tax breaks are financed with borrowed money, as 25 percent of the budget deficitis the direct result of the 2001 and 2003 tax cuts. The government may ultimately pay higher interest rates for the additional debt load, crowding out private investment and increasing the cost of free market activities.
The narrative that tax cuts on the wealthy help small businesses create jobs gives folklore a bad name. After all, only two percent of all small businesses are in the top income bracket. There’s also reason to believe that wealthy Americans spend less of their disposable income than the middle class on consumer goods and services that represent 70 percent of GDP. In fact, the savings rate for the wealthiest Americans decreased after President Clinton’s tax hike, only to surge in the years following the 2001 and 2003 legislation.