President Obama’s proposal to offer tax credit for new hire is a good example of a tax cut that is wasteful spending. The only employers that will benefit from this proposal are employers that would have increased their staff without the tax credit. Any knowledgeable business owner/CEO/COO will not overstaff for a tax credit. The tax credit will not cover the cost of a new hire for even a single year.

By definition, an economy grows when it produces more goods and services than it did the year before. Tax cuts that get positive results are designed to increase market incentives to work, save, and invest, thus creating jobs and increasing economic growth.

A good example of tax cuts that fail is tax rebates, because they do not encourage productivity or wealth creation. To receive a rebate, nobody has to work, save, invest, or create any new wealth. I contend that rarely will you met anyone that does not want to increase his or her wealth, though it is currently being demonized. We must look at the fact that the economy cannot grow without the presence of incentives to increase wealth. Going back to the 2001 tax cuts that reduced marginal tax rate increase, the bulk of the cuts were in the form of a tax rebates. By the fourth quarter of the year there was some increase in consumer spending, investment spending decreased almost 25 % and the economy grew just above 1.5%; by the next quarter the rebate affect disappeared. More recently the 2009 Economic Recovery Act rebates have proved to have a similar effect.

A good example of tax cuts that work is the 2003 tax cuts that increased market incentives to work, save, and invest, thus creating jobs and increasing the economic growth. When we look at the six months before and after the tax cuts we see: 1. Gross Domestic Product growing at 4.1 % after the cuts compared to 1.7% before. 2. The Standards and Poor had dropped 18% in the six quarters before the cuts and gained 32% in the six quarters after the cuts. 3. The economy lost over 250,000 jobs before the cuts and gained 300,000 jobs after the cuts. And the economy gained over 5 million jobs over the 13 quarters following the cuts. 4. Fixed investments had failed for 13 quarters before the cuts and increased for 13 quarters after the cuts.

It has been over a year since President Obama’s senior economical advisor, Lawrence Summers, appeared on “Meet the Press”. During the interview he made it clear that the Bush tax cuts would be allowed to expire. And recently President Obama stated that they would be allowed to expire, but some provisions of the cuts that helped the middle class would be kept. Even in his State of the Union speech, President Obama supported some tax cuts. What will actually happen has yet to be determined by Congress and the President. It is known that not all tax cuts are the same.