Unfortunately, tax cuts may not be the economic panacea they are advertised to be. Certainly not for the reason Bloomberg news reports.
With Obama set to lay out his plans in a Sept. 8 address to Congress, the administration is focusing on cuts targeted at middle-income Americans to spur consumer spending, which accounts for 70 percent of the economy, said the person, who spoke on condition of anonymity to discuss internal deliberations.
Finally, the fiscal category that really matters for the social economy is total government spending. If taxes are cut while government spending continues to increase at expected rates, this merely increases government debt, which requires additional savings to be sucked out of the private economy.
Even if every dime and penny of a tax cut would be saved, it would be offset by the same amount of private savings being given to government bureaucrats for government consumption. What a tax cut giveth, state borrowing taketh away.
If the President truly desires to enable economic recovery, he should argue for significant real reductions in government spending matched dollar for dollar with tax cuts. This sort of fiscal policy would be one much more conducive to economic progress.