Supply side economics??

Question

What is the basic premise behind supply side economics? Will tax cuts in fact encourage investment in plant and equipment and create employment and simulate the economy. Would it be better to increase demand through government spending and put the money directly into the hands of consumers as the economy is driven by consumer spending?

Answer 1

Depending on your political persuation Kinsian Economics worked in the 80s.

We still aren't paying in the upper brackets the obscene amount of percentage of taxes in the 50s-70s. The economy boomed and interest rates and the prime lending rates all recovered after Reagan took the stagnant economy from Carter. "We will always have to live with inflation" Or not Jimmy?

Where people get upset is when they look and say spending was out of control. Well yes to some extent Since 1950 we have never had a true balanced budget even the Clinton years the supposed balance was based on rosy predictions of future growth and spending limits reaching far after he left office but by 1998 the economy was shrinking, It always does in like 12 year increments. The president can only pass the bills not actually spend the money. The congress spends. They create the bills that the president signs and the Democrats owned the Congress from the 40s to 1994. The GOP passed a balanced budget and passed a line item veto to empower Clinton and then the courts threw it out. That would give the president ultimate control over pork spending. Too bad it is gone.

It is a fact that I will spend the money I have mainly the lower class is not investing. Therefore spending on the bottom sends money into the system. Business grows and companies can hire more people. It has been proven.

The trick was in the 90s the economy was booming with a bunch of greedy cheaters and they abused the economy and businesses were shut down and people lost loads in the fake stock market.

Big business needs limits and coverage by laws to ensure they do not abuse this power. Now in the 80s we saw an increase and recovery of some manufacturing but then the 90s saw the service industry booming and manufacturing go down. Less because of taxes but more due to the economy of the world opening in poorer countries allowing the development of business in poorer nations and the export of many jobs. Heck Japan is saving money building cars here and Ford saves money building in Mexico. Which is worse?

Anyway the increase in money back to taxpayers helped build the recovery in 03 and the economy is doing well now. I know I appreciate the extra few hundred I get every year and hope I don't pay more now as a result of the new takeover. But jobs shift every decade. We don't make cars for 25 dollars an hour now but was that really good or not? Maybe for individuals in short terms but not for Ford and the unions with shops closing,

I lived through the 80s and people were happy and jobs were better and the economy boomed. Those darn Democrats didn't want to stop spending in the 80s LOL That is how Reagan got his cuts! They are all in bed anyways.

Answer 2

Certainly tax policy effects the choices businesses make. It also effects decisions individuals make too. For many individuals, the tipping point in buying a home is because the mortgage interest and property taxes, are tax deductible.

For business, the tipping point in building a new plant, or opening a new line of research, may be that they receive special tax treatment.

The tax code itself is a way for the government to encourage certain behaviors, like saving for retirement, buying homes, or investing in R & D, by allowing tax savings for those activities.

The latter part of your question does not make sense. If we are increasing government spending, we are not putting the money directly in the hands of the consumers. We are in fact taking it out of the consumers hands.

I am all in favor of lowering people's taxes so they have the money to use in a way that best suits them. For some in may be in consumer purchases, which help the economy, or by investing or saving, which also help the economy. There is no negative consequence in letting the taxpayer keep and use their money as they see fit, except that it reduces the government's ability to spend that money as they would want to.

Answer 3

I'll give you the easiest answer without all that mumbo jumbo.

Have you ever heard of the theory of supply and demand? Well, supply sided economists argue that if you give tax cuts to the middle class and poorer people, it will just drive up the demand, but not the supply.

So supply side economists argue that by giving tax cuts, tax expenditures to wealthy individuals or wealthy corporations or firms, the money they keep (instead of going to pay for government taxes) will be an incentive to industrialize and modernize machinery/efficiency/all that stuff, and will benefit the consumers, since they are the majority.

So the idea is that it's not about consumer spending/demand, its more about producers supplying (because there is no point of having so much demand without the ability to supply). Thus, will hypothetically make the economy robust.

Cheers.