In One Eye

Thursday, June 26, 2003
Why a tax cut (and, for that matter, an interest rate cut) is unnecessary and/or foolish.

The NY Times reports this morning that
The 400 wealthiest taxpayers accounted for more than 1 percent of all the income in the United States in the year 2000, more than double their share just eight years earlier, according to new data from the Internal Revenue Service. But their tax burden plummeted over the period ...
Meanwhile, the LA Times reports that
New statistics out Wednesday suggest those parts of the economy that are buoyed by low [interest] rates—especially housing—are already doing so well that it's hard to imagine them doing much better even with the latest cut ... [while] those parts of the economy on which policymakers are now relying for a strong rebound have been unmoved by low rates to date and seem unlikely to be jolted back to life by the latest cut.

Indeed, there were fresh signs of weakness Wednesday in the long-suffering manufacturing sector. The Commerce Department said durable goods orders unexpectedly fell 0.3% in May.

Analysts said the decline is a sign that corporate America has yet to resume full-scale investment in new plants and equipment, and also will further discourage businesses from making new investments. Neither problem will be solved by lower interest rates, experts said.
So tax cuts and interest rate reductions look good, and might even make some people think that something's being done to revive the stagnant economy, but upon further review, these things do little or nothing, and might even be counterproductive.