Supply Side Economics

Sometimes I hear people say “tax cuts only benefit the rich,” but this statement seems a misrepresentation at best.

They usually state that tax cuts on the rich will only fatten the pockets of executives who seek to only increase wages for those in the upper levels of a corporation, rather than use the excess finances to build and create better products for consumers.

Tax cuts are part of something called “supply-side economics,” but those on the left side of the political spectrum misrepresent the phrase as “trickle-down economics.”

Supply side economics is rooted in Say’s Law, which theorizes “that producers and their willingness to create goods and services set the pace of economic growth.” Supply side economics progresses society forward by cutting taxes to encourage entrepreneurs and corporations to invest their finances into improving their goods and services, thus increasing the safety, quality and standard of their products.

This stimulates demand in the marketplace because consumers will want to purchase quality products that improve their lives.

Supply generates its own demand basically. If you generate a cheaper product (not something that nobody wants to buy) – if you make a product cheaper and better, people will want to buy it. If you invent new products that changes the way people live, everybody wants to buy it.

Take Steve Jobs for example and the iPhone that his company Apple made. 20 years ago nobody heard of an iPhone, but now practically everyone has one and that’s because of supply side. Apple created a product, you wanted the product, you went out and bought the product.

Supply side economics stands in contradistinction to Keynesian theory/demand-side economics.

Keynesian theory suggests that “The government can intervene to generate demand for goods and services.”

Greater taxation of the wealthy will put money in the pockets of middle and lower class citizens who will then use that money to purchase products, stimulating economic growth.

However demand side theory seems to fall apart under basic logic.

Consider: “You have a million dollars. Do you give a million dollars to Bill Gates to invest in the building and invention of new product? Or do you give a million dollars — one dollar — to a bunch of people so they each can go spend it on a burger?”

The economy would improve if “you give the million dollars to Bill Gates,” citing that “the reason is Bill Gates is then going to create a product that makes everybody’s life better. That will create a bunch of new jobs in a growing area where people are opting for the product.”

So we should ideally lower taxes on corporations and wealthy individuals: even when wealthy individuals end up saving it instead of spending it, that can still help the economy. The myth that spending is inherently better for an economy than saving is only true if we’re talking about somebody who just takes the cash and shoves it into their mattress. Banks are in the business of lending, they lend the money back out to people to actually create new businesses and new products.

Consider Uygur, the host of The Young Turks (TYT), he had to have an investor. When he started his show, he was given 4 million dollars by Buddy Roemer to start it. This is great, this is how business should work. But this money did not come from a bunch of poor people buying hamburgers, it came from a very, very wealthy guy who gave you money to create a business a lot of people want to patronize.

Even when corporate America uses tax cuts to buy record amounts of its own stock, that will still benefit America in the long run. (…/what-did-corporate-america-do-tax…) Just think about Steve Jobs or Bill Gates strengthening their own companies through this method to eventually release products (video games, music, iPads, laptops) that the rest of us can enjoy.

After the GOP tax bill was passed, AT&T and Boeing announced that they will issue additional employee bonuses and other investments as a commitment to support the U.S. economy. AT&T CEO Randall Stephenson said in a statement. “This tax reform will drive economic growth and create good-paying jobs. In fact, we will increase our U.S. investment and pay a special bonus to our U.S. employees.” (…/boeing-att-announce-employee-bonus…/)

Some people may try to downplay these benefits by stating that even though employees might receive a one-time cash bonus, they still pay a higher tax on bonuses as supplemental income or that even if average hourly pay has risen by a few percent from a year ago, it’s not as fast as the surge in corporate profits. However, these benefits, though seemingly marginal, are still better and long lasting than what pure Keynesian economics would provide.

In the end, whenever you hear someone try to deter you away from lowering corporate taxes, give supply side economics a chance. You may not agree with this approach to economics, but at the very least appreciate what people who advocate for lower corporate taxes are trying to accomplish.   You would be enabling the Steve Jobs and Bill Gates of the world to provide jobs and products that the rest of us can enjoy. That’s kind of how economics work.

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