Tax Cuts Will Not Stimulate the Economy

As the song says “Nothing from nothing leaves nothing.” (Billy Preston and Bruce Fisher)

Arguing for tax cuts as economic stimuli in this economy is fallacious because businesses do not have tax payments to cut when they are losing money. (They already can carry back net operating losses for three years to receive refunds and into the future to reduce tax payments when they return to profitability; no new laws are needed for this.) Knee-jerk calls by Republicans for tax cuts makes empty promises to businesses desperate for access to capital to stay afloat, let along pursue opportunities for expansion. The only significant tax payments left to cut are the business contributions to payroll taxes — cuts the Social Security system and Medicare can not afford.
We need capital added to the system by the last one in the game with money to spend, the federal government. Those additional funds must combined with requirements that banks receiving TARP funds resuming normal lending so that companies, including hard pressed not-for-profits (Credit Crisis Is Leaving Charities Low on Cash. http://www.nytimes.com/2009/01/24/us/24liquidity.html?_r=1&scp=3&sq=nonprofit&st=cse) can access the funds they need for operations and, hopefully, the expansion that leads to hiring more workers.

Paul Krugman discusses several other reasons that calls for tax cuts are hollow rhetorical attempts to derail President Obama’s proposal for an economic stimulus plan. He goes as far as using words like “fraudulent” and “bogus” in describing the tax cut arguments. I defer to the Nobel Laureate in determining whether the Republicans actually think tax cuts are the way to go or are just flailing at the President’s proposals based on their never letting real numbers, research and experience get in the way of a political argument. (Bad Faith Economics. http://www.nytimes.com/2009/01/26/opinion/26krugman.html)

Maria Markham Thompson, CPA, CFA
Certified Public Accountant and Financial Writer

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