Argument: Tax rate cuts, not tax rebates, stimulate the economy

Issue Report: Bush economic stimulus plan


Despite this proof, tax rebate advocates claim that they somehow inject money into the market, thereby stimulating economic activity. But the fact is that these dollars must necessarily be extracted from someone else by way of taxation or borrowing. In other words, tax rebates remove dollars from Peter to hand to Paul. No new wealth is created, but is merely taken from one group and given to another.
To illustrate, imagine that you sell windowpanes for a living, and your neighbor sells tires. Accordingly, you encourage your neighbor to throw a baseball through his window to ‘stimulate’ your sales. Afterward, you purchase unneeded tires from that neighbor to ‘stimulate’ his sales. Has either party benefited or produced any benefit to society? Obviously not.
Other forms of governmental wealth redistribution, such as increased unemployment compensation or housing subsidies, fare no better. This is because they also require additional government taxation or borrowing, so the resulting spending fails for the same reason that tax rebates fail.
In contrast, cutting tax rates will provide the best economic stimulus, because they provide the incentive for entrepreneurs to create jobs and pursue business endeavors. This is how prosperity is created. Reducing tax rates, whether individual or corporate, encourages people to invest in new equipment, plants, technology and hiring of employees, and they also motivate people to work more, create more and take more chances on new ideas. Furthermore, tax rate cuts provide businesses with greater confidence that their expansion plans will continue to pay off in the future, not just the short-term.
Thus, over both the short-term and long-term, tax reform strengthens the economy and creates wealth. Tax rate cuts encourage businesses to not only retain employees, but to hire new ones, and reward the types of risk-taking that makes America’s economy the most dynamic in the world. No nation has ever become wealthier through government intervention; only the free market increases wealth.
Accordingly, this is not the time for fashionable Keynesian tax rebates that only increase government meddling, taxation and borrowing. Rather, we must permanently lower tax rates to encourage growth and hiring, and demand from our elected officials that they refrain from redistributing existing wealth and causing further harm.”