Choose an economic policy area from the required reading and discuss how it has fared when served by
the free market or statist intervention. In doing so, apply a biblical model of statesmanship to the analysis.
The tax cut policy has been among the least explored policy outcomes in this course—yet it
appears regularly in discussions as an essential element of fiscal and monetary policies. Understandably
crisis occurs, and economic stagnation requires government intervention. One of these is a tax cut in the
form of tax deduction, tax credit, and tax rebate applied to personal and corporate incomes, sales (such as
on VATs). Most of tax cuts were also accompanied by economic and social infrastructure development.
Stockman (2013, 87-107) uses the subject of tax cut to demonstrate the Government’s economic
expansion. According to Stockman, Government spending disrupts the regular oscillation of the economy
during periods of crisis, inflation, or economic stagnation. The Bush Administration launched tax activism
in 2001 and 2003 (Horton, 2017). The results were variable: wealthiest 1% families increased after-tax
income by 6.7%, while the lowest income group gained 1%. A tax cut appears to be the least restrictive
option if the intention is to uplift the poor in a difficult situation. Bush tax advocates argued that long-
term growth increased by 10% by his tax cut proposals. But the cost of maintaining tax cuts required $ 4.6
trillion, for the period 2012 to 2021, below from the tax cut plan to pay for itself in the future. Still,
reports show government tax rate to corporations in 2017 decreased, from 35% to 21% in favor of private
sector companies that would over-run the cost of tax cut. However, the government did not stand to gain.
The economy shrunk from $ 1-2 trillion deficit from 2018-2025, while only contributing to the GDP by
0.7% on an annual basis. Reports show that a small tax cut of about 1% of GDP is ideal to control cyclical
inflation (e. g. Bush administration), as against 3% of GDP (Reagan administration) that afforded lavish
cash giveaways (we see the lowest-income group able to buy expensive items due to an artificial cash
injection).
Pro-tax cuts argue that starting tax cuts early in a crisis or economic stagnation triggers spending
and correct countercyclical economic downturns. They support this argument by an analysis around
timing, intensity, and duration of the crisis. But the reality is the opposite. Once the “big government” sets
in it is almost impossible to dismantle welfare dependency (Higgs, 2013, Stockman, 2013). People will
always complain of the inadequate welfare aid they received from the government (Friedman &
Friedman, 1979, 93). In most post crisis recovery conditions, the growth in the supply of money comes
through increase in the productive sector that determines recovery and economic normalcy rather than
stop-gap cash stimulus.
This means increase in spending through economic growth (increased employment and jobs), not
sustained tax deductions, tax credits, and tax rebates create long term economic impact. A point can be
made, therefore, for Friedman, argues for the supply-driven economics that faster recovery from crisis or
inflation can be achieved by getting businesses up and running so that people can go back to work, earn,
and spend and get the economy back in shape. Under President Trump, tax cuts were combined with jobs
(called Tax cuts and Jobs Act), which in principle is the right approach to rise from an economic calamity.
Trump’s Tax cuts and Jobs Act provided small cash for household’s unconditional spending mixed with
job creation (Senate Committee on Ways and Means, SCWM, 2020). Eventually, jobs sustain while the
cash stimulus wanes out.
Tax cuts promote the free market if accompanied by a robust job creation policy that ensures
work for the jobless or supports business expansion to produce jobs and employment (Board of
Governors of the Federal Reserve System, n. d.). The government ought to vigorously administer the job
creation component of the tax cut and link performance targets into planned stimulus funding of corporate
partners. Most literature supports tax cuts of less than 1% of GDP. Tax cuts of 2-6% had a devastating
impact on the economy. Not only is it unsustainable, it also does not build productive capacities for
growth. As opposed to Keynesian demand-driven economics, Friedman’s supply-driven approach
promotes free enterprise if adequate safeguards (e. g. from speculation and crony capitalism) are put in
place.
References
Arestis, P., & Sawyer, M. (Eds.). (1997). The relevance of Keynesian economic policies today.
Springer.
Board of Governors of the Federal Reserve System (n. d.). "Open Market Operations."
https://www.federalreserve.gov/monetarypolicy/openmarket.htm Accessed August 15, 2021
Higgs, R. (2013). Crisis and Leviathan: Critical Episodes in the Growth of American
Government. United States: Independent Institute. 350.
Friedman, M. and Friedman, R., (1979) Free to Choose-A Personal Statement. Avon Books, New
York.
Horton, E. (2017). The Legacy of the 2001 and 2003 “Bush” Tax Cuts. Center on Budget and
Policy Priorities. https://www.cbpp.org/research/federal-tax/the-legacy-of-the-2001-and-2003-bush-tax-
cuts. Accessed August 20, 2020.
Kagan, J. (2021). Bush Tax Cuts. Investopedia. https://www.investopedia.com/terms/b/bush-tax-
cuts.asp, August 16, 2021.
SCWM, n. d. (2020). Trump Tax Cuts Results: Full Review. The U.S. Senate Ways and means.
https://republicans-waysandmeansforms.house.gov/uploadedfiles/tcja_conference_.pdf accessed Aug 15,
2021.
Stockman, D. (2013). The great deformation: The corruption of capitalism in America. Hachette
UK. 742 pp.
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