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  •  Tax cuts for the rich doen't increase labor (2+ / 0-)
    Recommended by:
    snazzzybird, Amber6541

    In 1991 the CBO did a study comparing tax cuts and Public Investment. [pdf]

    While both tax cuts and public sending help demand in the short term, only public spending increases the GDP in the long term.

    Increased public investment has a direct impact on demand and GNP in the short run: each additional dollar of public investment initially raises demand and GNP by a dollar? No such direct increase in the demand for goods results when taxes are cut. Reducing tax revenues affects demand by raising disposable income (dollar for dollar), which, in turn, stimulates consumption. Since part of the increase in disposable income is likely to be saved, each dollar of reduction in taxes increases consumption (and, therefore, GNP) by less than a dollar over the short run.

    While the Right argues that low taxes will in crease employment, the empirical evidence suggests that the increase is mild at best.

    While some analysts might argue that reductions in payroll tax rates also expand the economy's capacity to produce output by increasing the supply of labor, empirical evidence indicates that these effects are small. To the extent that reduced payroll tax rates induce more people to work, or induce those already at work to work harder, a cut in payroll tax rates can expand capacity. Nonetheless, economic research suggests that one can expect only small increases in the supply of labor and the intensity of work effort.7

    The seven at the end is a reference to MIT economist Jerry A. Hausman [Google book] who found that decreased taxes on the average person increases the labor supply significantly, but an increase in the marginal rate for the richest wage earners show very little increase in the labor supply.

    While high-income groups certainly complain loudly about taxes, none of the surveys which we summarize have found a significant disincentive effect of the higher tax rates. Thus we might conclude that a convincing efficiency argument does not exist for lowering the marginal rates of high-income groups

    Back to the CBO memorandum we see this rather startling chart, but all too familiar to us now after the last ten years of Bush's tax cut. [charts are always hard in forums like this. the brackets are negative numbers]

    TABLE 2. SIMULATED EFFECTS OF INCREASED PUBLIC

    INVESTMENT AND REDUCED PAYROLL TAXES ON REAL

    GNP, USING THE MSG MODEL
    Difference of Real GNP from
    Baseline in Billions of 1991 Dollars
    Increased public investment  13  15   0
    Reduced payroll tax             6  [22]  [53]

    Difference of Real Per Capita GNP
    from Baseline in 1991 Dollars
    Increased public investment  47   53     0
    Reduced payroll tax             24  [79]  [179]
    Difference of Real GNP from

    Baseline in Billions of 1991 Dollar
    Equivalents
    Increased public investment 12  12    0
    Reduced payroll tax            6  [18]  [36]

    What this shows, is what we saw. Tax cuts at first stimulate the economy, but in the long run are detrimental. The right column is the legacy of the Bush tax cuts.

    Four out five sock puppets agree

    by se portland on Sun Oct 03, 2010 at 09:43:24 AM PDT

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