http://finance.yahoo.com/news/tax-cuts-rich-dont-spur-151649273.html

This makes sense. Think about it. The conventional wisdom is that if businessmen pay less in taxes, they’ll turn right around and invest it in their business. But you could just as easily say that if they get to keep more of their money, they won’t have to risk as much investment in order to generate the same returns.

You could say the same for the consumer. With a bigger paycheck from a tax cut, he might prefer to pay off his debts, or put it in savings, not necessarily go out and spend it on something. At least he has a choice, now. But if he’s short of cash he borrows for that kitchen or that new car. Consumer credit is good for business, more money (even if its “printed” by a bank) chasing fewer goods stimulates production.

It stimulates inflation, too, but we can worry about that tomorrow. Besides, it means debt we incur today is easier to pay off tomorrow. High inflation means “spend it or lose it”. If your wealth is in cash, instead of capital, you are under pressure to unload it while its still worth something. That’s good for business too. Their wealth is in property, stocks, machinery, tangible assets which are insensitive to inflation. They would prefer a little inflation so workers are a little hungry. That’s good when dealing with labor.

And we know when corporate taxes were in the 50%-90% range like they were during the mid-20th century, businesses invested it in their physical plant and growth to shelter it from the taxman. The economy boomed and the war debt vanished. Where does it wind up now? The Caymans? Capital gains sleight-of-hand?

Hey, this economics stuff is easy.