 HOME | BLOG | ABOUT US | CONTACT US | PAST ISSUES | ADVERTISING RATES | RACK LOCATIONS Benefits of large tax cuts largely a myth by Julian Sereno Without question, judicious tax cuts help crank up the economy. But excessive tax cuts flood the economy with too much money chasing too few good business opportunities. The inevitable bubble forms and bursts. As government expenditures rise inexorably, and the government borrows. The next generation is asked to pick up the tab. "A rising tide lifts all ships," said President Kennedy, describing the tax cut his administration enacted, which were credited with bringing about the Go-Go economy of the 60s. President Reagan’s tax cuts of the 80’s helped launch the recovery from the stagflation plaguing the country during the late ‘70s. But later that decade came the bursting of the junk bond bubble. Too many dollars, too few good investments. During his campaign for the White House, Bush I repeated the dogma, famously saying, “Read my lips, no new taxes.” When he raised taxes anyway, Conservatives never forgave him, no matter that he was a responsible president doing the right thing. Bush did not win reelection, but by raising taxes, the economy soon pulled out of the recession the early ‘90s. President Clinton made no such pledges, but set tax rates low, as his economic team recommended. This was part of the economic plan that brought about the greatest prosperity in our history. The surging economy led to the first balanced federal budget since 1969 and surpluses as far as the eye could see, if you listened to the economic forecasts of the day. This time it was the economy that created so much wealth that once again, there was too much money chasing too few good opportunities. This time, the lemmings of Wall Street sunk it in the Nasdaq Stock Exchange, and the Dot-Com bust of the start of the millennium resulted. President Bush II took office during the Dot-Com bust. He pledged tax cuts to his Conservative supporters and delivered, cutting taxes on the wealthiest members of our society. He also promised that these tax cuts would fuel an economic boom, but on this he did not deliver. This time tax cuts were ruinous, contributing directly to the Great Recession that still grips our land. These cuts shortchanged the government so much that by the end of Bush II’s administration, the country went from a budget surplus to borrowing $1 trillion from the Chinese to make up for the revenue lost to the tax cuts. The money that the wealthy didn’t pay in taxes was supposed to be invested so businesses could expand and hire more workers. That didn’t happen. Instead, rich people handed it over to their money managers to invest, (think Bernie Madoff) and it ended up fueling the bubble in sub-prime mortgages and credit-swap derivatives (think Lehman Brothers). When it burst, it almost took the whole economy with it. That money is gone forever. This time, everyone, rich and poor, conservative and liberal, took a hit, including the super rich the tax cut was designed for. at least initially. And the government is broke. To paraphrase President Kennedy, a bankrupt government sinks all ships. Julian Sereno is editor and publisher of Chatham County Line |