One can argue that lowering taxes will spur productivity, and thus provide the government with needed revenue to fill the deficit through taxes on business revenue and new individual income and consumption. This is a mighty forecast, that has proven to be a failure with the Bush tax cuts. Times have changed, and expectations are low. The expiration time should have allowed us time to adjust the formula, not worsen it.
There is a high level of inequality in the United States. Roughly, 38% of people fall between the median - poverty line; with incomes at $43,000 - $18,000 respectively. The top 20-10% are the richest in the country; making $300,000 and above. The rich have more money to acquire wealth. Generally, their income is taxed more, which provides incentives to transfer income to wealth. Acquiring wealth through investments which have low capital gains taxes (thanks to the Bush tax cuts), caused their income to rise, while the 38% poor and middle class have experienced a decrease in dollar income. The thought was that the rich will stimulate through investment. Instead, they acquired wealth through savings. Wealth increased to about 90% of the income for the rich. Consequently, there was little job or consumption growth.
The current crisis added to the economic slowdown. The US government continued hefty entitlement spending on Medicaid, Medicare, Social Security, spending projects, etc. Government grew with less revenue because of a failed tax incentive model. With that, we contributed to the estimated $5 trillion federal deficit, and $445 billion budget deficit, fueled with treasury bonds. If you don't have it, you borrow, right? But, how long will we borrow for the forecast of revenue growth alongside economic productivity comes into fruition. Accumulating more debt increases the time period as the government adjusts the model, allowing more time for revenue to cover debt. In short, the revenue curve will continue to decline as the debt curve increases.
The US government needs to hedge against a potential loss of revenue. If these tax cuts fail to stimulate growth, there needs to be a budget balance to correct the model.
The argument against the federal government proposal fades as I realize that this is more of a state issue. States need to rise up and take a stiff approach their own tax system, while bridging budget gaps. Each state should incentivise job creation by encouraging training for demand industries with subsidies and/or business tax breaks to encourage job creation (only issued if they hire workers). Instead, the federal government proposes to disincentivise employment with jobless benefits extending for another year, with no concern for the Beveridge Curve, which clearly shows a decline in labor market quality.
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