November 16, 2010 12:28 am

Real motive for tax rate cuts for rich is political

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From Mr Boris A. Ruggieri.

Sir, Few people would argue with Senator Mark Warner’s objective of using tax policy to stimulate the economy (“Obama’s alternative to repeal of Bush tax cuts”, November 12). But his statement that allowing the cuts for the top 2 per cent of wage earners to expire would be “removing $65bn from the economy” shows just how much ideology is taking the place of consistency or reality in the debate over taxes, as well as over many other political issues in the US today.

One does not have to be a confirmed Keynesian in order to realise that increasing government revenues is one of the most important ways to stimulate the economy. This happens not only by reducing deficit fears, but through government programmes at all levels that support the private sector’s efforts to create jobs and put additional money in the hands of consumers.

As Senator Warner also points out, the private sector is currently sitting on nearly $2,000bn in cash that is not going into the economy. Would throwing more money at the top earners in the form of extending their tax cuts, or reshuffling them from one area to another and giving them catchy names such as “constructive partnership”, do anything to revive the economy? Or would well-off individuals and corporations simply continue to hoard more cash, depressing demand further and leading to even higher unemployment?

No one seriously claims that the original purpose of cutting taxes for the wealthy was to help the economy, which at the time was enjoying the benefits of a balanced budget. The obvious reason was political, not economic. That is still the real motive behind extending the tax cuts. In the same edition you published a report headlined “Obama ponders compromise tax plan”. Would not “Obama panders” have been more appropriate?

Boris A. Ruggieri,

New York, NY, US

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