Business earnings have turned weak and may remain weak for months to come. The stock market is struggling to maintain its footing and unemployment is beginning to rise again. The President's plea for a tax reduction obviously springs from the assumption that a tax cut is an appropriate means for averting the dreaded decline. He proposes no massive boosts in government spending, no new protection of American industry from foreign competition, no tighter government control over commerce and industry, as several U.S. Presidents have done in the past. Instead, he favors a gradual reduction of some taxes.
Taxation is no simple fiscal matter.
It presents problems of shifting, diffusion, and incidence, the difficulties of which challenge even the ablest economist. Every tax change, whether up or down, sets into motion a chain of reactions that affect industrial production, prices, wages, employment, modes of living, and so on. Most legislators who are no economists are unaware of the numerous economic effects of the taxes they impose. They are guided by public opinion, which is molded by the media, which in turn are led by thought leaders pointing the way. Throughout the world, Keynesian theories have become the most influential formulation of economic thought in a century, appealing to both practical politicians and mathematical economists.