Republicans Need to Rethink Tax Cuts

Three articles in the Nov. 13 Business section should be read together: “Fiscal Policy Redux,” “Top CEOs Expect Sour 2003 U.S. Economy” and “New Investor Tax Breaks Expected.”

Conservatives are pushing “supply-side” tax cuts for businesses and investors to stimulate the economy. Their approach won’t work, because businesses won’t increase their hiring and capital spending, and investors won’t resume investing, until they expect an increase in demand.

Fiscal stimulus needs to put more money into the pockets of those who will spend it to consume, not to invest: lower-middle-income and low-income people, the very people whose incomes stagnated or fell during the last generation. This will increase demand, motivating businesses and investors to invest again.

Supply-side stimulus worked in 1980, when the problem was price inflation because of too much demand. Today we need demand-side stimulus, because the problem is over-capacity in most industries.

In today’s economy, the Democratic solution is the right one; the Republican solution is the wrong one.

August R. Gerecke Jr.

Claremont