Soundings

William J. Stern
The Council Flunks Econ 101
Everybody else knows you need tax cuts during a recession.
Winter 2002

In Washington, Democrats and Republicans disagree on how best to jolt the economy out of its current recession, but they agree in principle on the need to cut taxes. It’s Economics 101: if you slash business and personal taxes during an economic contraction, you ease the pressure on firms to cut costs by laying off workers and reducing investment, and you leave taxpayers more disposable income, which they can pour into investment or consumption, giving the economy a lift.

Did New York City politicians ever take Econ 101? In recession-hit Gotham, City Council members have been squabbling over the budget, but the “conservatives” want taxes to stay where they are, while the “liberals” want to hike them. No one is suggesting the tax cuts that even congressmen know are crucial. But maybe the council members do know that they’re defying the laws of economics and just don’t care. They know they represent not all New Yorkers but only those who elected them: government workers, government-supported social services workers, and welfare recipients. The council members want to lessen the recession’s effects on these dependents on the public purse; and if that means supporting policies that drain vitality from the city’s private economy and limit opportunity for the majority of citizens, fine.

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