Bottom-Up Tax Cut

Tax cuts should go to the lowest income earners. When they pay less to the tax man— they will still be paying FICA, property, and sales taxes— they spend that extra cash. More money will flow through all levels of the economy. This will grow GDP, because consumer expenditures comprise 75% of all GDP activity.

Figure 1. Consumption by income

Figure 1. Consumption by income

 

Corporations will see greater profits. Corporations will have more money to invest and grow their business. Everyone prospers.

Top-Down Failure

Growth in the wealth of the wealthiest has not jump started the economy. Since the Great Recession, 93% of the income growth went to the top 1% of earners. Their deployment of additional money has been anemic for the overall GDP, for the entire nation. They use (click on Figure 1 above to see details) only 20.8% of their income on consumption, which flows directly into GDP.

Figure 2. More money that you can spend

Figure 2. More money that you can spend

The Top-Down Problem

Their extra income goes into the financial sector, not directly to new plants or productive sectors that contribute to GDP. The money stays in the financial markets, contributing  significantly to highs despite anemic GDP and corporate profit rather than to growth in.GDP.

Current Tax Proposal

The current tax cut bill is estimated to increase the federal debt by $1.5 trillion over 10 years. Let’s put that number into context. If we gave the bottom 75 million earners (rather than the richest) a tax cut that sums to that amount, each of those employees and small business owners would get a tax break of $2,000 per year for 10 years.

Bottom-Up Result

As of September 2017, there are 127 million people working full time. The 75 million, getting the tax cut, would be the entire bottom 3 quintiles, the 60% of the labor force with the lowest wages.It reaches into the middle class.

As figure 1 shows, those 75 million beneficiaries spend over 95% of the money. The tax cut would be immediately consumed and reflected in GDP.

The real economy would grow. Everyone would prosper.

Tax cuts

Bottom Up, not Top Down.

 

 

 

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