Cutting Taxes on the Wealthy Doesn’t Work, Here’s Why


If you’re being honest, you can’t deny that cutting taxes on the wealthy will in some ways boost the economy. On the flip side, cutting taxes on the wealthy will increase the national debt. Estimates from the CBO say Trump’s 2017 tax cuts will increase the deficit by $1.8 trillion over 10 years. The question we need to ask is, could that $1.8 trillion have been spent more effectively, than to cut taxes on the wealthiest Americans?

Image result for marginal propensity to consume

The Marginal Propensity to Consume

The simple reason you shouldn’t cut taxes on the wealthy is because they don’t spend the money! Wealthy people have a lower marginal propensity to consume, meaning, they spend a lower percentage of their income than the average American. It is only when the money is spent, does the economy actually experience an increase in GDP! The fact that working-class people are more likely to spend money they receive from a tax cut, makes them the best people to receive a tax cut. Tax cuts on lower income earners boosts the economy more than doing the same for high income earners.

According to a 65-year study by the Congressional Research Service, low income earners spend .86 cents for every dollar earned vs .48 cents for high income earners, thus proving it to be more beneficial to the economy to cut taxes on lower income earners.


Tax cuts are usually followed by spending cuts.

In order to offset an increase in the national debt, spending must be cut in conjunction with tax cuts. People worry when taxes are cut on the wealthy, that the corresponding spending cuts will be to things like education, Medicare, Social Security, or other things the government provides that help people.  


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Trumps’ Tax Cuts

In full disclosure, there were some small parts of the Trump Tax Bill that were thrown in there that can help middle class people. The majority of this bill cut taxes for wealthy Americans.

  • Cut corporate taxes from 35% to 21%
  • Doubled the threshold for paying the estate tax from $5.6 million to $11.2 million.
  • Lowered income tax for all tax brackets except the lowest tax bracket
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It hasn’t always been this way

We all need to be furious that our government cut $1.8 trillion off the budget. During the 30s and 40s FDR and other progressives in congress changed the tax code that by 1944 the highest marginal tax rate for wealthy Americans was 94%. Corporate lawyers use every trick in the book to convince America that we should lower taxes on wealthy people, they say the effects will trickle down. We should strive to have a taxation more like the system we had when FDR was president.

Sources

1. https://www.cbo.gov/publication/53787

2. https://www.investopedia.com/terms/m/marginalpropensitytoconsume.asp

3. https://www.youtube.com/watch?v=O_Oozju3RRI

4. http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

5.http://www.taxhistory.org/thp/readings.nsf/ArtWeb/1AEBAA68B74ABB918525750C0046BCAF

6. https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/

Chris Weber

economics politics

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