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Welfare for Millionaires

2014-11-11 Comments off

The idea behind cutting corporate taxes during a recession is that the extra money would be reinvested, driving growth and thus hiring more people. That generates economic activity, creating jobs and breaking the recession. If the same business opportunities that exist normally still existed during a recession, this could work, but only if you also assume businesses are more interested in the public good than their own.

What’s missing during a recession is a basic driver of economic activity: demand. Demand drives profit, and that drives growth which means more people will be hired. A tax break increases profit, which ought to create jobs according the the previous logic. But not all profit is the same, even though “marginal differences” would count a tax break the same way it would count a sales revenue increase.

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