May 3, 2005
IDEAS AND OPINIONS
Simple economic plan: Bush smarter than we think
Since entering office in 2001, President Bush has been criticized for his tax policies, especially tax cuts for corporations.
At the risk of coming under attack, I will discuss the economic ideology behind cutting taxes for corporations. Although politically incorrect, everyone benefits when we let the big guy win.
It is no secret that the economy was headed toward a recession in 2001. The stock market was on the decline, unemployment was rising.
Why, in that situation, would the President propose tax cuts for Corporate America, the group that had the financial means to ride out a recession?
One answer lies in simple economics.
The U.S. economy is supported and sustained by corporations. The largest companies in the U.S. are responsible for making the U.S. the economic power it is.
With conditions similar to 2001, companies face difficult decisions.
If there are heavy financial losses, either due to the stock market or the effects of a recession, they have to either cut costs or close down.
To cut costs, they would have to increase prices and lay off workers, making overall price levels rise and leading to widespread inflation and unemployment.
Not only would the poor have to pay more for products, many would lose their jobs. It would almost make sense in this case to raise taxes and increase aid for the poor.
Almost.
However, this would treat the symptoms, not the problem.
If companies are struggling financially, a tax cut or investment tax credit helps offset some of the companies' losses, taking the edge off unemployment and inflation.
It also stimulates companies to invest in better equipment, advanced facilities, and more technological research, all of which cut prices and create more jobs with increased wages.
With declining prices, the poor can then afford the goods and services they need and stimulate the economy back to full production, heading off a recession.
Granted, it would take a few years to take effect, but the result would be permanent and self-perpetuating.
On the other hand, let's entertain the idea of increasing taxes to finance greater aid to the poor during a recession.
Companies struggling in preparation for employee cut backs and raising prices would be hurt even more by a tax increase.
They would have to lay off a greater number of workers, raise prices even higher and possibly close down factories and production facilities, lowering national output.
This in turn lowers the overall tax revenue, in essence negating the tax increase.
Many of the poor would be laid off from their jobs, replacing their wages with welfare and unemployment benefits.
Additionally, prices would increase, making it even more difficult for them to provide the essentials.
In the long run, this would cut national growth and set us back years.
If the government neither raised nor lowered taxes, the same thing would happen.
The effect would be more moderate, but still leaning toward inflation and unemployment.
So, did President Bush show favoritism when he cut taxes to the companies?
Did he do this despite the national need?
It's possible, but the effects from an economic standpoint now make sense.
We can criticize the President all we want, but the fact is that we sustained the greatest terrorist attack in U.S. history.
It was aimed at the heart of the financial capital of the world, yet still we avoided a major stock market crash and pulled out of a nose dive that could have rivaled the Great Depression.
Only four years later our economy is bigger than it was before 2001.
Something had to have been done right.