Tax Rebates Do Not Stimulate The Economy

From: The Desk of Brian M. Riedl

The debate on taxes and economic growth is also clouded with confusion. By asserting that tax cuts spur economic growth by “putting spending money in people’s pockets,” many tax cutters commit the same fallacy as do government spenders. Similar to government spending, the money for tax cuts does not fall from the sky. It comes out of investment and net exports if financed by budget deficits or govern­ment spending if offset by spending cuts.

However, the right tax cuts can add substantially to productivity. As stated above, economic growth requires that businesses produce increasing amounts of goods and services, and that requires consistent business investment and a growing, pro­ductive workforce. Yet high marginal tax rates- defined as the tax on the next dollar earned-create a disincentive to engage in those activities. Reduc­ing marginal tax rates on businesses and workers will increase incentives to work, save, and invest. These incentives encourage more business invest­ment, a more productive workforce by raising the after-tax returns to education, and more work effort, all of which add to the economy’s long-term capac­ity for growth.

Thus, not all tax cuts are created equal. The economic impact of a tax cut is measured by the extent to which it alters behavior to encourage productivity.

Tax rebates fail to increase economic growth because they are not associated with productivity or work effort. No new income is created because no one is required work, save, or invest more to receive a rebate. In that sense, rebates are economically indistinguishable from government spending pro­grams that write each American a check. In fact, the federal government treats rebate checks as a “social benefit payment to persons.” They represent another feeble attempt to create new purchasing power out of thin air.

Consider the 2001 tax rebates. Washington bor­rowed billions from the capital markets, and then mailed it to Americans in the form of $600 checks. Rather than encourage income creation, Congress merely transferred existing income from investors to consumers. Predictably, the following quarter saw consumer spending surge from 1.4 percent to 7.0 percent, and gross private domestic investment spending drop correspondingly by 22.7 percent. The overall economy grew at a meager 1.6 percent that quarter, and remained stagnant through 2001 and much of 2002.

It was not until the 2003 tax cuts-which cut tax rates for workers and investors- that the econ­omy finally and immediately began a robust recov­ery. In the previous 18 months, business investment had plummeted, the stock market had dropped 18 percent, and the economy had lost 616,000 jobs. In the 18 months following the 2003 tax rate reductions, business investment surged, the stock market leaped 32 percent, and Americans created 307,000 new jobs (followed by 5 million jobs in the next seven quarters). Overall eco­nomic growth rates doubled.

Marginal tax rates were reduced throughout the 1920s, 1960s, and 1980s. In all three decades, investment increased, and higher economic growth followed. Real GDP increased by 59 percent from 1921 to 1929, by 42 percent from 1961 to 1968, and by 31 percent from 1982 to 1989.

Yet in a triumph of hope over experience, law­makers embraced tax rebates over rate reductions again in early 2008. While the economic data are still coming in, it is clear that once again the rebates failed to support economic growth. There is no reason to expect another round of tax rebates to be any more effective.

Silent Night

The story of this carol is that on Christmas Eve, 1818, the organ of Saint Nicholas Church in Oberndorf, Bavaria, was in need of repair. With no way to repair it before the midnight Mass, the priest of the church and the organist composed this beautiful hymn in just hours. It was sung in three-part arrangement with the accompaniment of a guitar.

Silent night, Holy night,
All is calm, all is bright
‘Round yon virgin mother and child!
Holy infant so tender and mild,
Sleep in heavenly peace,
Sleep in heavenly peace.

Silent night, Holy night
Shepherds quake at the sight
Glories stream from heaven afar,
Heavenly hosts sing “Alleluia”
Christ the Savior is born.
Christ the Savior is born.

Silent night, Holy night
Son of God, love’s pure light
Radiant beams from Thy holy face
With the dawn of redeeming grace.
Jesus, Lord at thy birth.
Jesus, Lord at thy birth.

John Adams: The Foundation Of A Free Constitution

“Statesmen … may plan and speculate for Liberty, but it is Religion and Morality alone, which can establish the Principles upon which Freedom can securely stand… The only foundation of a free Constitution, is pure Virtue, and if this cannot be inspired into our People, in a great Measure, than they have it now, They may change their Rulers, and the forms of Government, but they will not obtain a lasting Liberty. … Religion and virtue are the only foundations, not of republicanism and of all free government, but of social felicity under all government and in all the combinations of human society.”

Angels, From The Realms Of Glory

bethelemangelsStanza 1:

Angels from the realms of glory,
Wing your flight o’er all the earth;
Ye who sang creation’s story
Now proclaim Messiah’s birth:

Chorus:

Come and worship, come and worship,
Worship Christ, the newborn king.

Stanza 2:

Shepherds, in the field abiding,
Watching o’er your flocks by night,
God with us is now residing;
Yonder shines the infant light:

(Chorus)

Stanza 3:

Sages, leave your contemplations,
Brighter visions beam afar;
Seek the great Desire of nations;
Ye have seen His natal star:

(Chorus)

Stanza 4:

Saints, before the altar bending,
Watching long in hope and fear;
Suddenly the Lord, descending,
In His temple shall appear:

(Chorus)

Lyrics by James Montgomery, 1771-1854

Music by Henry Smart, 1813-1879

How Does Your Church Measure Up?

How would you rate your church on the practice of evangelism? Does your church teach holiness? Is the body of the church, your congregation, growing in faith or only in numbers? Is discipline practiced by the leadership? Is there widespread dissatisfaction with and uncertainty about the purpose of the church?

It may very well be that your church has lost its grip on the Gospel of Jesus Christ. The practical issues of ministry in your church may be very complex, but usually they boil down to one trend; the corruption of the authentic Gospel message. This watered-down version of Christianity-lite lacks the power of the Holy Spirit. It does not produce born-again, committed Christians. It is a very poor substitute for what God has provided by His grace.

This counterfeit gospel message fails utterly to produce the deep reverence found in churches in ages past. There is no sense of the need for serious repentance. There is so much emphasis on making people feel good about themselves that Gospel humility has been forgotten. The spirit of worship has become shallow and self-centered. The church is seen as more of a social club than the body of Christ. Much of the fault lies in a liberal clergy lacking the character of convections. The rest of the blame falls upon congregations who willingly settle for content-less Christianity.

Such churches produce men who are self-centered rather than God-centered in their thoughts. The fear of God is unknown as He has been reduced to the status of a “good bud.” God is seen as a helper who gives comfort, satisfaction, peace, and happiness. There is less and less interest in glorifying God.

Forgotten is the proclamation of Divine sovereignty in mercy and judgment. Forgotten is the summons to bow down and worship before our almighty Lord and King. The modern gospel exalts man.

The church used to teach men to worship God. The only concern now seems to be making man feel better about himself. Gospel preaching has been turned into mass counseling sessions. The Biblical message has been reformulated to take into account cultural relevance and the self-perceived needs of those attending. Thus, radical depravity and the inability of man, unconditional election, and limited atonement are among the major doctrines that remain untaught today.

This set of twisted half-truths is not the biblical gospel. We must recover the preaching of the authentic, biblical gospel of ages past. We must choose to bring our preaching and practice back into line with it. It is our most pressing present need and our most valuable gift to the world.

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