The Law of Supply and Demand
When members of Congress left for their August recess, they fully expected to come back to vote on a number of tax cuts, including the permanent repeal of the estate tax.
Hurricane Katrina changed all that.
A week after the hurricane, Matthew Gardner wrote in the San Diego Union-Tribune about what the slow response to the disaster revealed. "This glaring failure should be a wake-up call for anyone who still believes that the administration's tax cuts have not hampered its ability to effectively prosecute multiple wars while providing basic services to its own citizens."
Gardiner says Congress "can confront the horrible reality of a nation that is incapable of caring for its most vulnerable citizens in their time of greatest need -- or they can continue to pretend that tax cuts for the wealthiest few impose no costs on the nation as a whole."
But why would the ruling party cut taxes for the wealthy instead of, say, providing childcare for the poor, or making sure the District of Columbia has enough money for every student to get his own textbooks?
The answer lies in trickle down economics. Fans of the theory don't like to use that term because it astutely describes the phenomenon -- the economic benefit flows downstream until it's just a trickle. Yes, if the wealthy pay out less in taxes, they will invest more and hire more (and go on vacation to Europe more) but they'll hire at a minimum wage that, at the moment, puts a full-time worker with a family well below the poverty line. Besides, the wealthy (and corporations in particular) are notorious for exploiting loopholes in the tax code, so one wonders just how high a tax rate they're really paying.
Ultimately, is everyone helped under such a system? Quite possibly. But the people at the top are helped disproportionately to the people at the bottom -- particularly when need is factored in -- resulting in an ever increasing wealth disparity and cycles of poverty that aren't broken simply by growing the GDP. Plus, there's the general concern citizens of a democracy should feel when too much wealth is concentrated into the hands of a powerful few. (Think Russia's oligarchs.)
My skepticism should not be construed as a blanket condemnation of the Reagan tax cuts. Surely we can agree that a top tax bracket of 70 percent is outlandish and it was a good move to get that figure down significantly.
With the recent extension of the tax cuts for capital gains and dividends (cuts that help only those who can afford to invest) and the ongoing push for a permanent repeal of the estate tax (a tax that also hits only the wealthiest), we're back in the mode of supply-side economics -- the idea that with more money in their pockets, the country's elite will invest that money back into the economy, spurring growth.
On the flip side (demand-side) leaving more money in the pockets of those living paycheck to paycheck virtually guarantees that it will be rapidly recycled into the economy as they make necessary purchases at local stores. Choosing to save the money for a larger purchase, like a home, would also be an economic good.
I would be interested in hearing from Debaters who can make a good case that the benefits of supply side economics are more substantial than the benefits of demand side.
The idea of supply-side economics was born when a guy called Arthur Laffer sketched a curve on a cocktail napkin in 1974, and the debate over its merits has been raging ever since.
In his Friday column, a triumphant E.J. Dionne heralded the end of this era, declaring supply side economics solidly debunked. Dionne believes Republicans are finally starting to see that "the help-the-wealthy, damn-the-deficits approach doesn't hold together, either as policy or politics." I'm not sure what his evidence is of this change of heart -- I haven't seen any -- but I welcome any evidence Debaters may find.
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