Why Tax Cuts For The Rich Are Slowing The Economy

Adding a huge chunk of money to one millionaire's pocket does not increase spending nearly as much as adding smaller chunks to a million middle class pockets. There are only so many goods and services that one millionaire family can buy. Once he's bought six cars and three houses, he's going to want to put the rest of his money away in the bank (so to speak). He'll essentially "park" the vast majority of it. But as we noticed earlier, the bank isn't going to be doing much with that money because businesses aren't all that interested in borrowing it right now. So it'll cool its heels, sittin' on the dock of the bay, wastin' time.

As we discovered in the Roaring Twenties before the Great Depression, permitting money to concentrate too heavily in too few very rich hands means that the less affluent part of the population will not be able to buy the goods necessary to sustain a cycle of prosperity. Because of the lopsided structure of wealth in that era, rich people could buy the hot new consumer goods like motorcars and radios, but the vast majority of folk couldn't, so the higher income consumer market quickly became saturated. Inventories built up as factories continued to put out stuff nobody could buy, and then, inevitably, came the day of reckoning. THAT is why the problem of overcapacity is something of a potential nightmare.

But if that same huge chunk of money the Bushies want to give to a few millionaires was -- dare I say it?-- redistributed to millions of less rich and less satisfied consumers, they'd spend it, immediately, on pillows and pens and groceries and gasoline and button-down shirts. Precious little of it would end up in banks (although a lot of it would probably go to paying off credit cards and cars, freeing up more spending).

Starving government operations in order to reduce taxes on the rich ends up merely robbing Peter to pay Paul...and Paul doesn't need the money!

He'll end up suffering in the long run, though, because if all the little people aren't spending money, the businesses he's invested in won't make nice profits and and won't be able to pay him his dividends. And they'll have to lay people off, and then fewer people will be able to afford to consume at optimum levels, and so on. What goes around comes around, you might say. Of such things are downward economic spirals made.


Much more at Why Your Wife Won't Have Sex With You's Economic Rant.

el - Really interesting presentation with charts. I'll just have to add that tax cuts for the rich have to be made up with higher fees and cutbacks of government services that takes more money from the less well-off leaving them with less to spend on consumer goods. This adds yet another element to the downward spiral.