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Originally Posted by Derwood
Obama promised to help small businesses in his campaign. Why act surprised?
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I am not surprised that tax cuts to the "rich" will have a stimulative effect on the economy, I am just surprised by the silence from the left. If a republican administration offered any type of tax cut or incentive to what they consider the "rich" they would have pitched a fit. At the end of the day it appears all the "stimulus" in the areas of bailouts and public works projects is not doing what the administration intended. What we are going to find is that the people who create jobs are the people who create wealth, or the "rich".
---------- Post added at 04:29 PM ---------- Previous post was at 04:05 PM ----------
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Originally Posted by guy44
No.
Long Answer:
A) Supply side economics never, ever meant offering tax breaks to small businesses. It meant increasing overall supply through incentives to produce, usually achieved by lowering taxes.
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Offering tax breaks to small business does fit under the broad definition of supply side economics in my understanding of the concept. Ideally, tax breaks or tax cuts would not be targeted to a segment of the economy but be broad based. And, I see it more as the elimination of disincentives rather than giving incentives by the government.
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Right now, we don't live in a world with a supply deficit - we live in a world with almost no demand. What Obama's talking about now has literally nothing to do with supply side economics, it has to do with employment.
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When we look at different components of the economy we find some supply surpluses and some supply deficits. For example, for small business owners with growth plans there is currently a shortage of capital for investment. Tax cuts or incentives will increase the available supply of capital. Over the course of the recession business has been reducing available inventories to free capital and to regain pricing strength. we have also seen productivity gains. On a forward looking basis we are closer to supply shortages and the need to ramp up production than the back looking indicators suggest. The incentive to earn more will trigger continued health growth. So if the economy is at or near bottom we do not want to see equilibrium at theses levels especially with unemployment at 10%
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B) Tax expenditures are extremely commonplace. That Obama is offering some to small businesses - after he campaigned on a platform of helping small businesses - has nothing to do with the supply side economics.
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Perhaps not in his mind. The problem is in his targeted plan rather than a broad based approach. The creation of a relatively complex plan lends itself to the system being gamed, lessening the impact. Reagan's approach or Bush's approach was better. Tax simplification and braod based tax rate cuts.
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C) We're in the midst of a serious recession. One of the worst results is that unemployment hovers at above 10%. Furthermore, poor unemployment numbers will kill Democrats at the ballot box. So Obama is proposing a large number of measures to increase employment. Some of these measures include tax breaks to small businesses with the hope that they will use their extra expected savings to expand (and thus hire new employees), or not fire current employees because of the poor economy, or even just not close down.
I question how effective these measures will be (studies on the multiplier effects of various stimulative proposals have shown that tax expenditures are amongst the least effective) but I am hard-pressed to see how one can view Obama's actions as supply side. I think you might be misinterpreting the term to mean any government action taken on the corporate sector that involves cutting taxes. But it really doesn't. Especially in a world with minimal demand.
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Time will tell regarding Obama's plan.
When you say "world with limited demand", I disagree. When we look at different ways to measure domestic or global demand we find that consumption is close to historic levels. What has happened is that there was a period of negative growth. simplistically if we give demand a base of 100, and it grows to 200, then goes down to 190, we still had growth of 90 and demand near record levels. What we need is to reverse the negative trend and to see what economist expect as healthy growth rates. It is all relative.