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Obama made it very clear that he will use scientifically proven methods over ideology. Republicans have an ideology that simply does not work because it eliminates necessary safeguards. It is called Reaganomics. W. Bush (and President Ronald Reagan, himself) didn't apply Reaganomics because it was obvious that it could not work. Reagan, GHW Bush, and W. Bush were all supposed to cut the size of government, but, instead, greatly expanded it, and charged the excess spending (during a time of lowered taxes so less revenue) to the National Debt. There are many debts beside the National Debt (such as the Foreign Debt which largely paid for the wars), so the government is in much worse condition than most people believe (because they don't even know about the other debts). Reaganomics means decreasing the size of government (fewer regulations, fewer regulators, fewer departments, etc), then taxes could be lowered. In theory, corporations could manufacture with less overhead if they didn't have to comply with governmental regulations (no pollution control equipment, no one looking over their shoulder to make sure that they made loans in sensible amounts to responsible people with collateral, etc). In practice, FDIC and FSLIC (Federal Savings and Loan Insurance Corp), made bad loans (for 125% of the value of a home, and with no credit check to people with bad credit). This is why banks failed under Repubicans during the Reagan/GHW Bush era, and this is also why banks (such as Indy Mac) failed during the W. Bush era. mississippi SUMMARY: Cutting taxes cuts government, and smaller government means fewer regulations that are drags on business. But many regulations are necessary to prevent bad practices that will cost more in the long run (the current economic mess threatens to take down the entire world economy and create mass starvation on a scale never seen before). What we need to do is eliminate stupid and wasteful regulations, as Al Gore did (Example: Gore ordered Johnson's floor wax to be purchased from a store rather than having the government mix a special batch of government floor wax to exacting military standards of sheen etc). Obama put it this way: We need a budget scalpel not a budget ax (to eliminate the waste without eliminating the necessary regulations).
The theory is that it frees up funds that businesses will use to hire more employees. However it has NEVER been proven to be effective. Employers hire employees based upon DEMAND for goods, not in response to tax cuts! While individual tax cuts might trigger a LITTLE more spending, a lot tends to go towards paying down debt or into savings, especially in a down economy. Corporate tax cuts generally wind up in the pockets of the shareholders, not in the payroll department. Again, companies hire additional employees in response to increased demand for goods and services that cannot be met at current staffing levels. Cost cutting measures that don't generate demand are simply saved for a rainy day or are parceled out to shareholders in the form of dividends. "Supply Side" economics assumes that cost reductions through reduced taxes or costs of regulatory compliance will generate jobs however this has NEVER proven to be the case in actual practice. On the other hand, the economy IS driven by increased demand and that DOES equate to more jobs. Companies do not increase supply to generate demand, they increase supply in RESPONSE to increased demand. That's the principal fallacy of "supply side" economics and has proven in practice EVERY time. $1 in tax cuts generates about $1.02 in total economic activity. $1 in government spending generates about $1.59 in total economic activity. What is better for you -- a 2% ROI or a 59% ROI?
In theory, cutting taxes puts more money in people's pockets to buy things. If the demand for things is higher, more people are needed to make these things, deliver them to the stores, work at the store and so on. It's a very simplistic answer, but you should get the basic idea.