Tuesday, July 29, 2003

Do you want to know what kind of tax cut would actually stimulate the economy?

A nonexistent one. That's what.

Or a payroll tax holiday.

The 1990's continued the trend of a massive shift in responsibility for social services and public infrastructure from the federal government to the states. During the boom times, states could accomodate public needs quite nicely. Even with tax cuts.

That's not the case now. The economy is stagnating, and these tax cuts that are supposed to pull us out of the rut will likely fail. Any stimulating effect the federal tax cuts might have had will be overshadowed by the state budget deficits, which will have to be covered with increased taxes, and spending cuts.

The cuts in spending hurt the economy just as much, if not more than, new taxes. So many businesses depend on state contracts. If they don't get paid, people lose jobs. State and city workers are being laid off. Though they are supported by our taxes, their spending contributes equally to the economy.

State budget deficits trickle down much better than budget surpluses. Not only do states have less money, so do counties and cities and schools, etc. So people take the hit on many levels. It's a vicious cycle.

And eventually, this heavy debt load model of funding the federal government causes reductions in spending on that level. Which is a really big deal. Imagine how many companies survive on government business. Of course, defense contractors will be spared the paring back. But I doubt anyone else will.

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