Tax cuts and economy’s performance

A question from Yahoo! Answers:

Liberals, tell me where I’m wrong?

The way to improve the economy is through tax cuts, not tax increases. Tax cuts work because it give employers of small businesses and even large, the ability to pay their employees a higher salary and create more jobs. If you begin to tax the so called “rich business owners” they will not take a cut in their own salary, but rather lay off workers or decrease wages. Also giving money back allows more opportunities for investment in the market and spending in general. Increasing taxes would discourage a person from starting their own business because the risks would greatly outweigh the potential rewards.

In addition to hurting the economy, redistributing wealth through taxes is simply un-American and anti-capitalism. What people like Hillary Clinton want to do is a direct play from the communist book in Soviet Russia.

First of all, the way to improve the economy may not necessarily be through tax cuts. Taxes serve a useful purpose; they pay, among other things, for the legal system that enforces contracts and property rights. Imagine that taxes are cut to the point where no contract or property rights enforcement is possible. Would this still be a good environment for business? Not likely… In fact, such an environment would be eerily reminiscent of present-day Bangladesh or Myanmar.

Taxes also pay for the public infrastructure, most notably, roads. Again, use your imagination and visualize taxes cut to the point where no road maintenance takes place. Would this be a good environment for business? Again, not likely…

Further, assuming we agree that taxes need to be cut, there is still a question of which taxes to cut. Any tax cut benefits different groups of people to a different extent. Expanding the Earned Income Tax Credit would primarily benefit the poor, while raising the gift tax threshold would primarily benefit the wealthy. Similar collisions may occur along employer-employee, borrower-lender, or tenant-landlord lines…

Now, on to discouraging people from starting their own businesses. The greatest discouragement actually is the absence of universal healthcare in the U.S. When you quit your job to start your own business, you lose valuable health coverage provided by your employer and have to make up for it somehow or just go without. Compared to a paid employee, a business owner is about twice as likely to have no health insurance at all and more than 50% as likely to be insured as someone else’s dependent.

As to “the communist book in Soviet Russia,” the Bush administration uses it, too, especially when it comes to justifying generous handouts to the defense contractors… If you want to see something un-American and anti-capitalism, just take a look at all the wars that the U.S. has fought in the recent years. Recall that Thomas Jefferson suggested that the U.S. should have “peace, commerce and honest friendship with all nations; entangling alliances with none”…

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