The more I read, watch and listen to the arguments concerning the so-called stimulus package, the more confused I become. I certainly can not claim to be cognizant of the subtle nuances of economic theory. I leave that to my son-in-law, a Professor of Economics. But even with his explanations, simplified to my level of comprehension, I still have some questions.
Everyone seems to agree that we must create employment, or maybe re-employment to recall people who have been laid off. What I don’t understand is how tax cuts are going to create jobs?
One argument is that if people are given a tax cut then they will have more available income, and in theory, at least, will rush out and buy more stuff. That will, in turn, require more clerks to sell more stuff.
The problem I have with this argument is simple: What kind of a tax cut can increase available income for those who have no income. A 10% increase in zero is still zero. I don’t believe we have any type of negative tax rates.
The other scenario concerns tax breaks for business. The theory seems to be that if we provide tax breaks for business, then business will have more cash flow, and will hire more people. I see a problem with this theory. Suppose we take a business that has been losing money, and has laid off employees. Presumable they would reduce operations cost to at least the break even point. Now offer this business a tax cut. Does anyone really think they will immediately rehire personnel? I don’t think so. I think they would decide that if they were at break even with a reduced work force, then a tax cut would allow them to realize a profit, keeping at the same personnel level.
In either case, I fail to understand how tax cuts will really stimulate employment or reemployment. In my simplistic approach to this problem, I think I would follow the example of FDR. Give them shovels and make the dirt fly! We have lots of things that need fixing (including our banking system, but that’s another problem that won’t be solved by a tax cut.)