Tax cuts do more harm than good

The recent announcement by the U.S. Treasury Department about the ballooning annual budgetary deficit disproves the myth of tax cuts as an effective tool to stimulate the economy.

The “snake oil” theory of a beneficial correlation between tax cuts and a rise in investment that leads to GDP growth, employment and other macroeconomic indicators, has been around for a long time. The simplistic theory of the Laffer curve and the equally slippery supply-side economics have been peddled by right-wing politicians and pseudo economists as viable tools to manage the economy.

But the reality is quite different. Tax cuts mostly benefit the rich. Rich folks are not traditionally big spenders of extra income; mostly they save the offered bonanza.

Tax cuts given to low-income groups, who are big spenders, could have a beneficial effect. However, this could be marginal because the slice of the economic pie they receive is minuscule compared to the share of the billionaires.

Economists have advocated targeted tax cuts with varying rates instead of the single rate, which has a much greater chance of success.

Trump is committing the same mistake made by Ronald Reagan, Margaret Thatcher and a host of others who undertook massive tax cuts leading to huge deficits and subsequent cuts in vital public services.

Tax cuts may be seductive, but it’s essential to recognize the harm it can inflict on society in general.

Joe Jeerakathil, Saskatoon