Congress wants to create jobs by cutting taxes. But who should get the biggest cuts?
Republicans prefer to stimulate the supply side (investors and corporations), while Democrats favor directing most of the cuts to the demand side (consumers). I suggest that we can choose between these options by examining the current state of the economy.
Supply side: The stock market is booming, and investors are buying equities at unusually high price/earnings ratios, which suggests there is lots of hot money out there chasing too few opportunities. Furthermore, corporations are sitting on large piles of cash. So, it would seem that the supply side is not hurting for money.
Demand side: It’s reported that consumers have accumulated historically large debts, in credit cards and second mortgages, to maintain their lifestyles. This suggests a lack of resources on the demand side. If consumers were given large tax cuts, they would spend the money rapidly, increasing demand for products and services and providing an impetus for businesses to grow. So, why are Republicans focused on the supply side, as in the Reagan and “W” Bush administrations? Probably because investors and corporations are their biggest donors.