Why does anybody here (Canadians) care?
Sniffity, sniff, sniff indeed...... Some people like to know what's going on outside of their little bubble........
Donald Trump has
proposed cutting taxes as a way of “priming the pump” -- that is, stimulating the economy.
Whether stimulus could help the economy is an interesting question, but it’s not the most important thing to be asking. The real question is whether tax cuts are the right thing to try. And the answer is probably not.
Lots of people like the idea of tax cuts as stimulus. According to standard economic theory, taxes distort the economy and harm efficiency. And basic Keynesian theory says that tax cuts stimulate the economy in bad times. Therefore, if you want to get out of a recession, why not reduce taxes, thereby killing two birds with one stone? Economists who think taxes should be as low as possible tend to see the fiscal stimulus aspect as an added benefit.
First, classic Keynesian theory says that tax cuts are a much weaker stimulus than government spending. In a depressed economy, there are unused resources that need to be put to work -- idle factories, empty office buildings, workers sitting around at home because they’re unable to find a job. The idea of stimulus is to match the unused workers with the unused factories and office buildings, by having the government spend money that filters through the economy.
If the government hands out money to people via a tax cut, they’ll spend some of it and save some of it.
Also, it’s worth noting that tax cuts go mostly to the well-off, because the wealthy and the upper-middleclass shoulder much more of the tax burden. But the well-off have much higher savings rates than the poor and working-class:
Therefore, pipe fixers and road workers
are likely to spend more of any government windfall than the typical recipients of a tax cut.
more
www.bloomberg.com/...