Miscellany

Bush’s tax cuts undermined by basic principles

His [George W. Bush’s] policy thus rests implicitly on the premise that if business owners could afford to hire additional workers, they would. But whether owners can afford to hire is not the issue. What matters is whether hiring will increase their profits.

The basic hiring criterion, found in every introductory textbook – including those written by the president’s own economic advisers – is straightforward: If the output of additional workers can be sold for at least enough to cover their salaries, they should be hired; otherwise not. The after-tax personal incomes of business owners are irrelevant for hiring decisions….

Had the dollars required to finance the president’s tax cuts been used in other ways, they would have made a real difference. Larger tax cuts for middle- and low-income families, for example, would have stimulated immediate new spending because the savings rates for most of these families are low. Their additional spending would have been largely for products made by domestic businesses, and that, in turn, would have led to increased employment.

Economists from both sides of the political aisle argued from the beginning that tax cuts for the wealthy made no sense as a policy for stimulating new jobs. Experience has proved them right.

Bush’s tax cuts undermined by basic principles

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