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Tyson's 2 thoughts on tax-cut expiration

September 28, 2010 - Mike Maneval

The Nation's John Nichols recently interviewed economist Laura Tyson, who endorsed permitting the Bush administration's tax cuts for top two income brackets to expire.

Tyson's arguments pursued two lines of thought: Job creation, and taming federal deficits. And what she had to say about each was equally interesting.

Tyson maintains that low tax rates for investors are an ineffective way to spur job growth, and, broadly speaking, she's right. She notes a Congressional Budget Office report that studied 11 different policies, and of the eleven, found the tax cuts for the top brackets to be ranked eleventh. "It's not as effective as giving grants to state and local government. It's not as effective as unemployment compensation. It's not as effective as the temporary payroll tax reduction targeted at employment—or spending on infrastructure," Tyson said.

Because it is not the investors whose tax relief is ranked 11th out of 11 who create jobs - it is, always has been and likely always will be consumers whose spending creates jobs. If you want America's hotels and department stores and factories to employ more people, the answer isn't giving the owners of the hotels and factories tax breaks - its putting more money in the pockets of the working middle-class so they can take more trips and buy more goods. Because at the end of the day, a successful business only will employ the number of people necessary to provide customers with the good or service offered, quickly and conveniently enough so the customer returns for more. And had the private sector not spent the last 20 years treating the compensation levels of that working middle-class so dismissively, so contemptuously, lackadaisical job growth would not be hindering the economy today.

As to Tyson's second line of thought, the economist does not pretend an end to these lower rates on the top tax brackets will solve the deficit problem. Tyson acknowledges spending on Social Security and other entitlement programs will need to be "looked at seriously," in her words more or less. It is, unfortunately, a few steps shy of an admission entitlement spending needs to be curtailed.


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