Why Big Tax Cuts Are Essential
by Michael Mandel
Let’s get this straight right away. I’m not a dogmatic supply-sider, who believes that tax cuts are the solution to all economic ills.
But I believe that Obama’s $300 billion tax cut is essential to ‘recapitalize’ the American consumer, just like the banks are being recapitalized.
Think about it this way. This economic crisis consists of three parts:
—Mountains of bad loans, which are weighing down banks and other financial institutions
—Rapid retrenchment by businesses, which is causing them to cut jobs and investment
—Trillions of dollars in excess consumer debt, which is forcing households to cut back on spending.
These three factors together are feeding on each other. Because banks are lending less, it’s harder for businesses and consumers to spend. Because businesses are cutting workers so quickly, loan defaults are rising and it’s harder for consumers to pay back debt. And because consumer debt has risen from 96% of disposable income in 2000 to 130% of disposable income today, Americans are completely maxed out. As a result, any job cuts immediately mean more loan defaults.
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