In Which Zandar Answers Your Burning Questions

Steven Spruiell over at The Corner asks (while accusing Jon Chait of a reductio ad absurdum argument on tax cuts, no less:)

The importance of cutting tax rates, in terms of economic stimulus, it not just that it gives people more money to spend. The stimulus comes from the incentive effects of letting people keep more of the money they earn. If people think they are going to need to work harder and save more because the government is going to cut their Social Security, and the government is simultaneously letting them keep a higher percentage of each marginal dollar, eliminating taxes on their investments and reducing taxes that create a drag on their business activities, how could that not be a net plus for economic growth?

Really?  So, if I make X a year and pay Y in taxes, and my taxes are reduced by Z, under Steven's theory here I'm going to put that money away because the government is cutting spending programs.  It doesn't matter how hard I work if I'm a salaried employee or my boss has eliminated overtime to cut costs.  My incentive to put this money away becomes more of a necessity, and I sock it away.  Sure doesn't help with inflation or interest rates.  if anything, like most Americans I'm not saving that extra money, I'm reducing my debt.  That helps a little as far as keeping marginal dollars, but not much.

How does that stimulate the economy?  How does that increase employment or demand or revenues?  I'm not buying anything extra.  Maybe the money market or hedge fund manager in charge of my chunk of the pool of money is having a fatter paycheck, but I'm sure as hell not unless the tax cuts are substantial.  If the tax cuts are more than the spending cuts, then surprise!  The deficit increases.  The important part is the economy isn't growing to offset the deficit increase, either.  Steven like most supply-siders, keeps making this fundamental assumption that tax cuts equal growth, when it doesn't unless you cut taxes to the point of increasing the deficit like Reagan did, and then Bush Jr. did.  In the end, all that does is help the people that pay taxes.  If you pay little to no taxes, it does absolutely nothing for you.

I mean look at where we are right now.  If Spruiell is right, our economy should be gangbusters after the Dubya tax cuts, right?