Tax cuts good for economy
Professor Watson argues against the plan to give tax cuts to the
wealthy in
“Inauguration spells doom for democratic
principles,” (Viewpoint, Jan. 8). Actually the plan
provides that the wealthy will be taking on a larger share of the
tax burden, namely, from 36 percent to 38 percent. More
importantly, because of their low marginal propensity to consume
(Economics 101), most of the tax savings of the wealthy goes to job
creating investments.
I served as an economist in the administration of President John
F. Kennedy, and when he proposed tax reduction to help job growth,
he got the tax cuts and job growth improved.
Job growth of about 1.5 million per year is needed and to
finance this growth, an investment of about $300 billion is needed.
Much of this investment is provided by the wealthy, so the economy
would benefit by tax cuts received by the wealthy.
Federal taxes have become an increasing drag on the economy,
rising steadily from 21 percent of national income in 1992 to 25
percent in 2000. Over the long term, the economy would benefit if
there were some moderation of this increasing drag. Lower marginal
tax rates would be most helpful in this regard.
Theodore A. Anderson Professor of finance
(Emeritus)