Saturday, March 10, 2007

Economic Impact of Tax Cuts

Mark Thoma again criticizes the political rhetoric of the common assertion that Tax Cuts raise revenue. I would agree with Mark’s assessment, but what I concern myself with runs even deeper; the fact that Tax Cuts are actually hazardous of economic performance. Here is a much greater valuation exercise, and one which can be far more damaging. Tax Cuts not only curtail collection of tax revenues, they introduce instability into the Production cycle; I will try to explain why in a method that Readers can understand.

Simple economic models will outline the impact of Tax Cuts on marginal unit profitability. Guaranteed Profits levels will lessen desire to maximize marginal unit profitability, as well as raise the Cost of the labor consumed by maximizing marginal unit profitability. Management loses care in the pursuit of Production efficiency, relying upon low Tax rates to replace the marginal unit profitability lost. These low Tax rates also input added Cost to Quality Control measures to insure effective Productivity, as such measures will decrease after-Tax profitability because of pre-Tax drain of Income. Labor, itself, feels the lack of intensity in Management, and begins to slip from prime Productive effort. It remains hard to evaluate such sub-efficiency alterations of Production schedules, but I estimate it costs an approximate 9% of total Productivity.

The Above analysis should not be utilized as venue for Management ranting for greater Productivity from Labor. The Question confronting Us continues to be the impact on Production efficiency of Tax Cuts. The issue is not one of Production speed, but of Production quality. This devolves into a loss of Management supervision of Production due to the Tax Cuts, not some failing of Labor performance. Actual fact states Tax Cuts may finance Offshoring, due to ability on the part of Management to avoid the Costs of Quality Control. Tax Cuts may be the force of erosion which contaminates Our economy. lgl

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