In 2012, United States President Barack Obama faced a choice regarding how to legislate the permanency of the President George W. Bush Tax Cuts. In some ways, the dire economic growth of “the Great Recession” called for one obvious path, of making the tax cuts permanent. But, in other ways, President Obama was “suckered” into supporting this path, because of exhortations that economic calamity would otherwise result (then termed the “fiscal cliff”) which was largely an exaggeration. Mr. Obama opted to push to make some of the tax cuts permanent, for the middle-class, but this policy still greatly increased the United States (U.S.) deficit and debt.
Trump tax cuts will cause excessive demand, much of it going to people who do not need it, leading to higher prices.
Currently, Democrats in Congress will have to decide whether or not to be “suckered” into Mr. Trump’s tax permanency proposals, which are reminiscent of Mr. Bush’s. But, the economic situation today is different. Illinois Senators Dick Durban-(D) and Tammy Duckworth-(D) have, previously, sent letters to Republican leaders calling for tax “bipartisanship.” More recently, a similar letter from Michigan’s Senators was vague, though saying than that the tax cuts’ “permanency” would increase the U.S. deficit from $1.9 trillion dollars to $2.9 trillion.
Hillary Clinton’s economic team created a novel idea, of giving tax credits for businesses that would share that money with workers.
To put it simply, the Trump tax cuts will cause excessive demand, much of it going to people who do not need it, leading to higher prices. These prices are on top of the proposed tariffs, whereby it is unfathomable that since the middle of the 20th Century presidents have had powers uncheckable by Congress. Also, the inflation is largely due to the dovish policies of the Federal Reserve, which continues to cater to gullible investors on Wall Street. Deficits will soar, leading to higher interest rates, to even more inflation, and eventually to greater unemployment.
In 2016, presidential candidate Hillary Clinton’s economic team created a novel idea, of giving tax credits for businesses that would share that money with workers. The plan, though, was ambiguous, and poorly promoted. Alternatively, a supply-side approach, of giving tax credits to businesses that cut prices, risks becoming bureaucratically complex in American’s capitalist framework, an enforcement conundrum.
Wage controls, vis-a-vie the President Nixon era, are equally complex, as are anti-price-gouging measures. While making the middle-class tax cuts alone permanent is feasible, it could engender political challenges. And, unfortunately, these topics did not arise during the 2024 presidential election, because political leaders misinterpret economics, albeit 16 Nobel Laureate economists sent a petition to Washington warning about the economy’s’ health.
Yet, today, I propose an idea similar to Mrs. Clinton’s, which could help Americans to buy more, while costing the government less. Congress could provide a tax credit to businesses sharing 50% of the credit to workers’ wages. Here-named “demand-supply-side economics,” the supply-side aspect would expand production, but even if some resources ended up in CEO’s pockets, the other half going to blue collar workers would increase demand. The combination of the increase in the demand and supply curves at the same time, albeit disregarding their elasticities (the slope of the curves), would result in little changes to prices, but a greater output for Americans- more “bang for the dollar” at the grocery store.
Unfortunately, unresponsive companies might experience labor strikes, but the labor market helps to keep wages consistent with inflation. Furthermore, the government could choose the size of the program, and its time-length, without adding as much to the debt, which is now $31.5 trillion dollars and growing, every time one blinks.
The permanency and details of the Trump tax cuts, including those for the middle-class, need to debated, carefully, before mistakes are made that lead to even higher prices, and to even greater deficits and debt into the future.
Dr. Todd J. Barry holds a PhD from the U. of Southern Mississippi, and teaches economics, with Hudson County Community College in NJ, USA. Sean R. Barry holds a master’s degree in public administration, and has served on town committees in Branford, CT.
