Wednesday, September 08, 2010

Tax cut for the multimillionaire will be a stimulus to China

Even Peter Orszag is advocating extending Bush tax cuts for two years:

The reason is that the economy needs stimulus, and only the tax cut extention will receive bi-partisan support.

The economy is producing only 93.5% of its capacity according to WSJ. But 20% of the tax cuts go to people making more than a million - about 300,000 individuals. They are unlikely to consume more. And with idle capacity abundant they aren't likely to invest in the U.S. , either. I think they are most likely to invest their tax savings in China, where labor is cheap and capital return is more certain.

So in a globalized world a U.S. tax cuts will stimulate Chinese economy.

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