My Temple lifelong learning class (a nice euphemism for classes for us old people) recently discussed the new child tax credit just passed by Congress. It was generally a good conversation, until one of the participants asked whether we could be sure that the people who got this credit would actually spend the money on their children. This group is pretty much what you would expect from a Philly crowd – very liberal and very socially conscious – and yet this concern was being raised. And it was clear looking at the Zoom reactions that the gentleman who made this comment was not alone in his concern.
There are so many things wrong with this comment – perpetuation of stereotypes of the poor, blaming those with less for their financial condition, a condescending “I know better” attitude – that it’s tempting to go on a general rant in response, but that would be meaningless and dull. However, there is one aspect of this credit that I think people ignore more than any other. That is the general economic benefit we get by putting more money in the pockets of people who don’t have much.
Ronald Reagan made popular the concept of the trickle-down economics. The argument was that if you gave the wealthy more money to spend, they would put that money back into the economy and everyone would benefit. The Reagan administration predicted that their massive tax cuts would not result in a deficit because the additional money the wealthy now had in hand would spark an economic boom more than making up for the lost tax revenue. That didn’t happen, and by the end of the 1980’s we had huge deficit and a stagnant economy.
There was a similar rationale to the Trump administration tax cuts over the last few years, though the focus was more on what corporations would do with extra cash if we cut their rates. The hope was that they would reinvest more in research and development, and increase hiring. This too never came about, as corporations generally increased dividends and executive pay, but did not expand as hoped.
The problem is that those already well off, whether individuals or corporations, have what they need, and more. Anything extra does not really change their spending habits. Maybe someone buys a 2021 Lexus to replace the 2019 Beemer. Maybe they buy a luxury item, like a yacht. (I understand that the market for collectibles, like baseball cards, is through the roof. Woo Hoo!!!) More likely they invest this money in the stock market where it goes to corporations, which then increase dividends and executive pay. This creates a very nice circle maintaining and expanding the wealth of the wealthy, while doing little to impact the economy generally.
Those on the other end of the economic spectrum don’t have the luxury to sit on any money they receive. The cost of living, especially for those with children, dictates that what they get, they spend. And they spend it on basics. Food, rent, computers, clothes. A luxury buy is trading in the 2011 Camry for a 2019 Rav4. Or taking care of the house repairs that have been put off.
The extra money these people spend also goes back to corporations. However, it isn’t just extra cash. Companies now have to respond to a higher demand for their products. They respond to those demands through increased production. Increased production means more jobs. It also leads to more research, development and advertising because the corporations have to stay ahead of their competition.
Look, I am not an economist, and know that I am dealing in generalities. I have no data to back up this argument, though I am sure I could find it, as well as data to back up the opposite view as well. However, this strikes me as common sense. I know, I know, that’s an old-fashioned concept, and hardly a basis for making decisions. But every now and then I fool myself that I can think rationally and fall back on what seems likely. Silly me.
I also know that I am butting my head against basic psychology. We feel more of a loss if we give something up than if we fail to get something we were expecting. Failing to get $10.00 that you hoped to get does not seem the same as opening your wallet to give someone $10.00, and yet the economic impact is the same. Similarly, giving up tax revenue does not strike us the same way as money doled out by the government, and yet ultimately, we may get more back from what we shell out.
Even if I am right, I am not saying that economics is the be all and end all of deciding what our policies should be. There are other considerations. Such as moral concerns (talk about an old-fashioned concept) and budgetary issues. All I am saying is that we should be judging tax cuts that put more money into the pockets of the wealthy by the same criteria that we judge subsidies that put more money into the pockets of those on the lower end of the economic spectrum. They are two sides of the same coin, though the impact may differ.
As my father would say after one of my mother’s sermons, “And thus ends the reading of the word”.