The logic of tax cuts on the rich.

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The logic of tax cuts on the rich.

#1

Post by VG_Addict » Sat Sep 01, 2018 10:39 am

Can someone tell me the logic in thinking that reducing taxes on the rich, who make up a significant portion of the country’s money will stimulate the economy?

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Re: The logic of tax cuts on the rich.

#2

Post by I am nobody » Sat Sep 01, 2018 11:47 am

The usual idea is that, since the rich don't need that money immediately, they'll invest it in their own or someone else's business and the resulting productivity increases (assuming the business is well managed) will trickle down to everyone else. It's also an appealing form of stimulus for hardcore small-government types since reducing the tax base also forces the government to shrink (in theory) - a similarly expensive stimulus to the poor would presumably come from increased spending rather than tax cuts (since they don't pay much income tax to begin with), so it would also increase the size of the government. And no matter how much you believe in either of the above, it presumably helps at least a little that many of the people voting for the cuts and their major donors would be direct beneficiaries.

That said, cutting income taxes to increase business investment/productivity is a very roundabout way of doing things - there's no guarantee that anyone will do anything at all with the extra money, let alone invest it in productive companies. It'd make more sense to implement that as an investment credit rather than a no-strings-attached tax cut.

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