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Originally posted by Did you just call me Coltrane?
My point was that the biggest tax cuts should benefit the middle class, and not the upper class. This would seem to increase consumption and investment. Or is this more of a Keynesian/demand driven outlook? I'm speaking in purely economic-growth terms, not in who deserves and who doesn't deserve a tax cut.
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Well, keep in mind that a middle-class tax cut is also a lot more expensive because there are so many more people in it.
I suppose if you were designing an "ideal" tax system to stimulate spending, you would want to keep rates low on people who are pure spenders, and then ratchet up the rates on the people who save rather than spend. You could figure out a decent threshold, e.g., $150k/year, above which you're presumptively comfortable and don't need to spend as much.
Of course, that's what was tried from the 30s to the 70s, what with 90% tax rates on the top income levels. Not so good.
What's more, it's generally considered preferable to tax consumption and not savings, because savings build wealth and can be reinvested (this does not mean no taxes on returns to savings that are used for consumption). That's why a lot of tax cutting efforts are directed towards dividend and k-gain tax cuts--because these are returns to savings.
(If I remember my public finance econ. class right, it is equivalent to tax returns on savings if the savings are untaxed or make returns to savings untaxed if the initial investment was taxed, which is the principle behind Roth IRAs and general elimination of the taxes on investment income.)
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