Tax cuts, not government spending, are the best way out of recession
Last updated: March 2, 2017
Because it is not possible to enter counter points for this debate below, I am going to make a brief statement here.
Tax cuts are not an independent variable that can effectively determine job growth or the general economic health of a market.
Recessions, completely disconnected from tax rates to a large extent, have a much greater effect on the ability of businesses to thrive. This argument is baseless and the analysis is unfounded. Friedman was a scam artist. There is no statistically significant evidence that lowering already competitive tax rates will incentivize adding additional jobs when companies can produce goods more cheaply with automated factories and ever fewer human beings.
Tax cuts for corporations are often put toward dividends for shareholders and sometimes CEO bonuses. This does not benefit the average citizen, but does serve the interests for the most wealthy members of society.
Tax rates for young families earning a lower level of income, and for small businesses should be eliminated. Taxes for wealthy people and corporations should be returned to adequate levels and only cut with contractual obligations to job creation and pension funds. People need to wise up to the writing on the wall. The plutocrats want working people on their knees and will sell narrative lies and scams without factual basis to convince common folk who haven't taken the time to look at the historical and statistical relationship between tax rates and job growth.
Demonstrated Utility of Tax Cuts Contrasted With Increased Spending
Taking a lower amount of taxes on a percentage basis is a short-term mechanism to stimulate economic growth that translates into higher taxes in the long term when there is more money overall to be taxed. President Reagan cut taxes during the 1980s in the United States, and all projections were assumed for revenue shortfalls, or if nothing else, no increases in overall taxation revenues. However, the taxation revenue on individual incomes increased from 1980 to 1989, nearly doubling, from $244 billion $446 billion. Similar measures from the 1920s and 1960s also showed growth in overall taxation revenues after their implementation rather than expected shortages.[[http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm]]
In fact, when recession hit the United States in 1919, a series of tax cuts over the next nine years kept the economy stable, and the recession itself was over within two years. It was only after government spending increased in the 1930s in response to the 1929 Stock Market Crash that the economy plummeted into the true depths of its depression[[http://www.ibdeditorials.com/IBDArticles.aspx?id=334276867815560]]. Since it has been established that status quo taxation will provide incentives for citizens to subvert the legal norms of taxation payments, the reduction in taxation engenders loyalty between citizens their governments, and influences enough growth to more than pay for itself in a short time after implementation has occurred.
Government Spending is Inefficient
We often see government expenditure touted as the fastest way to improve GDP growth. With "each dollar of government spending" the GDP "increases...by only 1.4 dollars".[[http://www.economics.harvard.edu/files/faculty/40_Is%20Govt%20Spending%20Too%20Easy.pdf]] The increase for endogenous tax cuts (i.e. tax cuts attempting to help a faltering economy) are estimated to show about 3 to 1 growth in GDP.[[http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf]] Government spending and taxes are not separate issues. Governments can only pay off expenditures with tax hikes. The Romer study suggests that "an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent", a phenomenon likely caused by the fact that "investment falls sharply in response to exogenous tax increases".[[http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf]] What seems like a way out of recession may actually be a step into another one.
A recent example would be JP Morgan Chase Bank's 25 billion dollar bailout: a bailout they used to finance their own private acquisitions, not to make loans. They issued a statement that read "loan volume will continue to go down as we continue to tighten credit". JP Morgan took 25 billion but did not provide much-needed loans to small businesses, employers, and individuals which would have helped, among other things, to create jobs and improve the housing market. If JP Morgan felt they could make a profit from giving loans, they would. But all of their returns are heavily taxed to the point that making acquisitions is a safer and more profitable short-term goal, even though it does not improve the economy a bit.
Efficiency of Private Businesses
In addition, tax cuts are preferable because the forces of supply and demand can more freely work on their own. Firms seeking profit are more sensitive to demand than governments seeking to employ and prop up. Thus they affect supply so that the market is cleared as supply and demand meet and wastefulness is minimized. This makes for a more efficient allocation of resources and a much more sustainable economy. Both are necessary to recover from a recession.
Recently, the French government posted figures of 0.3% growth in GDP for the second quarter of 2009, an indicator it is coming out of the recession. Across the euro zone, only Germany matched this growth. This was unexpected by experts and while it does not mean the recession is over for France, it is encouraging. One of the key forces behind this was an increase in consumption. Consumption increased by 0.3% this quarter. This increase was the aim of the government when reducing VAT as part of its strategy to combat the recession. For companies such as restaurants and cafes, VAT was slashed from 19% to 5.5%, which industry bodies predicted successfully would lead to an increase in consumption.
Government spending can also create jobs but the question is are these jobs suitable for getting out of a recession? The answer is a resounding no. Let's examine one of the largest attempts by government to create jobs, Roosevelt's Public Works Administration which allocated $3.3 billion dollars for public jobs to stimulate employment[[http://www.nps.gov/archive/elro/glossary/pwa.htm]]. The jobs created by it usually lasted only months allowing only short term employment and the unemployment rate remained above 9%[[http://www.opinionjournal.com/editorial/feature.html?id=110011064
]]. Many of the jobs consisted of building public structures and murals such as a mountain theater that were not done to grow the economy further but to grow political capital. After the expenditures stopped, so did the jobs.
Only private industry can provide the long term stability and job creation through new and improved investments which are vital economic necessities to get out of a recession. By providing corporate tax cuts to incentive this, governments will not fall in a pit of spending that only provides sparks and stifling the private industry that could make blazing positive changes in the economy.
Benefits to and Efficiency of Households
Also, tax cuts for individuals can help households better handle temporary reduction in hours they are experiencing at the time or anticipate to experience in the near future. The less the government takes from households the more income there is to go towards balancing a recession affected budget. When a household runs a deficit it is nearly impossible for that household to increase consumption as the economy will need in order to recover.
Government spending, on the other hand, seems to be allergic to simplicity. It is rather inconsistent, for example the bailout of Bear-Sterns and not Lehman Brothers[[http://economistsview.typepad.com/economistsview/2009/03/failing-to-bailout-lehman-brothers-was-a-mistake.html]] or the substantial lack of transparency in the Troubled Asset Relief Program (TARP)[[http://blog.sunlightfoundation.com/2009/07/20/they-dont-call-it-tarp-for-nothing/]]. The complexities and variances of government spending leave consumers in a world of uncertainty and lead to declines in consumer spending and investment.
While the causes of recessions may be highly complex, governments need to provide simple and elegant solutions that consumers can understand and adapt to. Government cannot rely on solutions cloaked in complexity that even government officials don't understand and cannot explain to their constituents.[[http://www.nytimes.com/2009/02/10/business/economy/10bank.html
Government Spending is Protectionist
"National policies employed by the UK, French, Dutch and Austrian governments to build up liquidity reserves at home [are] creating a protectionist environment...[which has] adverse side-effects on the fabric of the globalised financial system [that] are already visible and, if left untended, will become more serious".[[http://www.telegraph.co.uk/finance/economics/5505726/Government-lending-targets-for-bail-out-banks-feed-protectionism-warns-IIF.html]] When governments subsidize their own industries and firms, other countries must in turn subsidize theirs, devalue their currency, or tack on tariffs to remain competitive in the global market. The WTO[[http://www.newsweek.com/id/175062]] and IMF have expressed concern about the future of the global trade markets. Tax cuts provide incentive to look for markets outside of the domestic exchange, increasing global revenue and creating job opportunities and capital investment opportunities that are not always possible domestically.