Right now, @Jaxk, businesses can make capital gains and just sit on the cash and wait for the economy to turn around. If they will be facing a greater tax on capital gains, they will be more likely to reinvest that money in building business. That way it becomes an offset to capital gains, I think. Thus their cost of sitting on money is higher and they are more likely to use it.
You are right about the connection between all taxes. In the end, individuals pay them. Of course, corporations are individuals in US law, for what that’s worth.
However, the point is that the market is what the market is. So no matter what your tax rate is, business still has to pay the prevailing rate for employees. Tax rates don’t affect that. Businesses hire the employees they need to produce the product they make at a rate that is profitable.
To stimulate the economy, you need more spending. It doesn’t matter who spends that money, although it does matter what they spend it on. Economists look at the multiplier effect of spending in various sectors of the economy. Spending on services has a much greater multiplier effect compared to spending on capital intensive sectors of the economy. I.e., hiring people keeps the money flowing. Buying shit doesn’t have nearly as strong a multiplier effect. Building infrastructure also has a better multiplier effect since it is an investment in stuff that can provide a return for decades, unlike military hardware which is often used only once and then is gone. Far too often it is gone before it is ever used. It has a short shelf-life (gets out of date fast) and no one really wants to have to use it.
Government spending goes for many things. Some of it labor intensive (medical and social services) and some of it capital intensive (the military). The government can buy more services and that will create jobs. They can spend on infrastructure and that creates jobs. They can spend in military, but that creates fewer jobs.
It is true that you can reduce taxes and let individuals have more money to spend. I don’t know if they will spend it though. In bad economies, people tend to save more. Saving is supposed to be good, but it doesn’t stimulate the economy as far as I can see.
However, if you reduce taxes, you have to cut government spending and lay off all kinds of government employees, unless you’re willing to increase the deficit. So there would be huge layoffs of government employees and that may well more than offset any stimulus of lower taxes.
The issue is confidence. If people have confidence, they will spend and stimulate the economy. Does deficit spending create confidence? Not when people are so scared of the debt. That rules out government stimulus.
Will tax cuts stimulate the economy? Not if people lack confidence. Will tax cuts to businesses allow them to spend more on employees? I don’t know. I’d like to think so, but I’m not sure. I have argued in the past that if health insurance costs are cut, then employees will get paid more in salary. Not sure if that’s the case. I suppose they could hire more people or they could just sit on the cash.
The problem is that no one has confidence and I don’t think tax cuts or govt spending of a limited amount will stimulate anything enough. We need to turn around confidence and that is as much a psychological issue as anything else. If people believe in politicians, it could turn around and a change of administration could help that, or it might not. That’s a crap shoot.
Increased regulations might help because one of the things that gives people a lack of confidence is a sense that the financial behemoths have a huge advantage and no one can keep them in check. The playing field is tilted their way, to use the popular metaphor.
I don’t think limiting government will help because government is the only thing between people and business behaving fairly. Limiting government would kill government oversight and probably lead to a worse economy.
So I don’t see fiscal policy being very effective, whether tax cuts, stimulus spending, or anything the Fed can do. Confidence is what needs changing, and we may have to tinker and tinker until we find something that seems to leverage confidence somehow.