Tax Cuts for the Rich Won't Stimulate the Economy Two Ways to Stimulate the Economy - But This Plan Will
with editorial assistance by Jennifer
Being a CPA, I was buried in tax returns when President Bush and Vice-President Cheney released their tax information just before the April 16th deadline. But it was no surprise that when their numbers were run through a calculator designed to estimate the tax effect of Mr. Bush's tax proposal, they were both set to save a significant amount of money under the plan.
Now that I have had time to take a breath and digest the information, I feel I need to comment on what it all means. We've heard people opposed to the plan call it class warfare. Is that fair?
The Vice President would save two or three times what the average family of four makes in an entire year. The top ten percent of income earners would receive over half of the benefits. This tax cut is in fact class warfare by the wealthy against poor and middle class Americans. The fact the benefits are not being doled out equally to all Americans who have worked for this prosperity is utterly unfair.
And the rationalization that is being used to promote the tax cut--economic stimulation--is a fallacy. Will a tax cut phased in to the wealthiest of all Americans stimulate the economy? Not much, if at all. Most of this money will be invested in stocks and bonds. This will not pull us out of a short-term slump. Even in the long run, a tax proposal that doesn't reduce our national debt and finance a reform of the social security system is a set-up for future insolvency.
But there are simple, fair ways to stimulate the economy now. The first would be a refundable credit to any American who earned money for the year. This could be addressed by allowing a credit against payroll taxes. A moratorium on payroll taxes could be put into place very quickly, and would show up in higher paychecks for everyone who works. Much of the benefit would go to people who badly need the money for day-to-day survival. This tax cut would be spent right away, stimulating the economy when it is needed--now.
A second plan would be to create a credit for homebuyers similar to the tax credit we businesses used to get with the investment tax credit. If the credit was 2% and you purchased a $100,000 home you would reduce your taxes by $2,000 in the year you purchased the house. This would have the greatest impact on first time homebuyers struggling to purchase their first home by in effect reducing their down payment by $2,000.
This would provide a great economic stimulus and increase our supply of housing stock at a time when affordable housing is becoming an issue through out our country. Homebuyers would get a helping hand, and the increase in housing starts would jump start the huge construction sector of the economy and have a ripple effect through out entire economy, increasing demand for most durable goods. The credit could even be extended to remodeling of existing housing, with increased credits (let's say a 10% credit) for energy-saving renovations. A five percent decrease in heating and air conditioning cost would go a long way to getting us out of our energy shortage.
Either of these proposals would do more to stimulate our sagging economy than the unfair bonus to the rich proposed by the Republicans. Either of these would provide a fairer tax cut and would put resources in the hands of all the people, not just those as privileged as our President and Vice-President. This proposal does not begrudge those Americans in the highest tax brackets their success, but let's face it--the American dream has worked better for them than others. Perhaps they should consider sharing it with others, as did Henry Ford when he voluntarily paid his workers a higher amount than the prevailing wage. In the long run, they might actually get more than they gave, as did Henry Ford by increasing the overall standard of living and increasing the market for their goods and services.