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posted: 11/17/2012 5:00 AM

Tax cuts for wealthy will do little good

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The unarguable idea behind the original and extended tax cuts was to spur the economy. But let's look at who fulfilled their obligation. Certainly the lower-income population did their part buying such mundane things as food and clothes, paying bills, catching up on mortgages and paying utilities.

But what did the fabled 2 percent do? They generally socked it into the stock market. Money in the stock market is of no benefit to an ailing society until it comes out of the stock market and into a consumer's hands where it is spent. It's a simple but often deliberately overlooked fact. Buyers and sellers of financial instruments simply trade paper among themselves until someone takes the money out and buys something which in turns requires that more be made by additional workers etc. Within the financial markets there is simply no consumption. The economic disaster (basically caused and facilitated by those very same 2 percent) required immediate action -- not the long term result from padding a 401(k) or IRA or whatever delayed instrument. In practical terms think about your own 401(k); it is of no benefit to you (or anyone else) until you actually make a withdrawal and spend the money on something. Yes, it may be valuable but it is not useful now, and now is what we need.

Renewing the tax cuts for the lower-income levels will result in continued spending with all of the benefits that it will entail. But the 2 percent will offer the same ineffective activity that they have so vividly displayed in the past.

Simply put, letting the tax cuts expire for the 98 percent will have a substantial negative effect on the economy; letting the tax cuts expire for the 2 percent will be like a ripple on the Atlantic Ocean.

James Prescott


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