Saturday, October 18, 2008

Demand-Side Tax Policies

And speaking about Republican tax nonsense, there's this idea of McCain and the conservatives that Obama's tax policies are "welfare." Yet conservatives have completely given up on the idea of supply-side economics, and all we're really talking about are variations of demand-side economics. And so if this is "welfare," it's simply a debate as to whether the welfare should go to the rich or not.

According to conservatives, we need to cut taxes so that business owners can spend more of it. And that's not supply-side economics. That's demand-side. Because the whole point of supply-side economics wasn't whether you were giving money to the upper-class or not. It was merely a weird pseudo-argument that stated that if tax rates were too high, the greed motive would disappear and our supply would drop because there were fewer businesses doing less business. And that's true. After all, if tax rates were 100%, no one would work. Similarly, if tax rates were 90%, the benefits of investing your money wouldn't be worth the risks. But none of this applies when we're merely talking about moving tax rates by a few percentage points. The theory behing Supply-Side economics is not applicable in our current situation.

Even though they won't say it, conservatives are merely supporting demand-side economics. It's all about allowing businesses to have more money, in order to increase their spending. And spending is on the demand side; it's about putting more money into the system to increase demand. And so the only question is: Where does it best benefit us to insert money into the system? Is it better if the government spends the money on roads, bridges, dams, and schools? Is it better to let individuals have it, so they'll spend it on groceries, clothes, cars, and credit card bills? Or do we just give it directly to businesses?

But in all cases, the money ends up with businesses. Government spending isn't some money hole that removes it from the economy. Government spending goes to contractors and suppliers and policemen and teachers. Even bribes and kickbacks go back into the economy. Similarly, individual spending goes to stores and other businesses. And then those businesses buy things and pay payroll, and the circle of life continues.

Where to Inject the Dough

And so the big question is: Why give it directly to businesses? Why not make them earn it? Why not let it benefit the little guy first? So we get our bridges and the construction company owner gets more money. So we get our kids new clothes and Walmart gets more money. I'm not sure why conservatives pretend that free money will motivate people to work harder, but I see it as the opposite. If you give people free money, they'll have less incentive to work. Ask anyone who wins a megabucks lottery. In the end, business people are in it to make more money; not hire more people or spend more. If you give them larger profits for less work, they'll keep it.

And if anything, if you give a rich person more money, they're likely to spend much of it on German cars, Russian caviar, and European vacations; which really does suck money out of the economy. So why not let Joe Sixpack pay his monthly credit card payment with the money before it gets washed away in a French bidet? The question isn't whether the business sees the dough. It's whether or not we make them earn it.

And again, this isn't how conservatives see this. They see it in terms of fairness, and people getting to keep what's theirs. But they agree that rich people need to pay more taxes than poor people. Everyone does. And they agree that tax policy is entirely arbitrary and necessary. And hell, they've really even given up the spending argument, as they argue that their tax policies increase tax revenues. And so if they're agreeing that rich people should pay more, tax policy is arbitrary, and increased tax revenues are a good thing; then it's simply a matter of deciding who's going to get the money that will be used to pump the economy.

And again, at that point, why give it directly to businesses? Why not make them earn it? Why give them free money, which discourages them from doing more work; when we can make them earn the money, which encourages them to work harder? And why not allow the funds to be spent on at least some layer of the American economy before it gets sucked out to Europe? John McCain wants to give $200 billion directly to these corporations. I say we make them earn it first.

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