Supply Side economics advocates for tax reductions in order to stimulate investm

Question

Supply Side economics advocates for tax reductions in order to stimulate investment and subsequently employment. Democrats intend to keep Obama Care and extend the Debt ceiling. President Obama advocates for eliminating tax inversions thereby curtailing US Companies from moving overseas to escape Federal taxes. Do you favor or oppose the premises of these Republican or democratic politicians/ economists. Considering the present state of our economy would tax reductions or tax increases be more effective in stimulating growth or would either approach lead to other problems?

Explanation / Answer

In addition to policies regarding revenue and spending, policies that encourage economic growth are the third major way to reduce deficits. Economic growth offers the "win-win" scenario of higher employment, which increases tax revenue while reducing safety net expenditures for such things as unemployment compensation and food stamps. Other deficit proposals related to spending or revenue tend to take money or benefits from one constituency and give it to others, a "win-lose" scenario. Democrats typically advocate Keynesian economics, which involves additional government spending during an economic downturn. Republicans typically advocate Supply-side economics, which involves tax cuts and deregulation to encourage the private sector to increase its spending and investment.

Economic growth and job creation are affected by globalization, technology change or automation, international competition, education levels, demographics, trade policy, and other factors. Cyclical unemployment is due to variation in the economic cycle and is responsive to stimulus measures, while structural unemployment is unrelated to the economic cycle and is unresponsive to stimulus measures. For example, a general reduction in employment across multiple industries would likely be cyclical, while a skills or geographic mismatch for available jobs would be structural issue.

1. A stimulus package should generate growth and jobs to offset rising unemployment. The point of stimulus is to increase economic growth and thereby generate more jobs. The reason that employment growth is slowing and unemployment is rising (and will continue to do so) is that there is a shortage of demand for goods and services: we will have the capacity to produce much more than we will be consuming, and what is missing are customers able and confident enough to make expenditures.

The two feasible ways to boost demand are to increase consumer spending (for example through tax or monetary policy) or to increase government spending (at the federal, state, or local level). Any stimulus aimed at spurring more business investment will not be effective at this point, because business investment will remain sluggish until consumer and government demand picks up. For example, a recent study estimated that business investment write-offs and the dividend-capital gain tax reductions included in Bush

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