Reddit reviews The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take

Oh, wow, this is a really complicated question with so many variables.
I'm currently, slowly going through this here book:
http://www.amazon.com/The-Benefit-Burden-Reform-Why-Need/dp/1451646194/ref=cm_cr_pr_product_top

Which is a good place to start. Basically, yes and no.

Tax cuts during a recession for small business will help greatly. They will help large businesses stay afloat if the tax cuts are the difference between bankrupt or getting through the recession. Also, tax cuts rarely "create more jobs", especially during a recession.

Take for example LV. The casinos were crying because they had all time low profits and wanted tax cuts so they can "keep people employed". This sounded great, so even during a recession when the government needed money the most, they gave them the cuts. The idea was, that with all these people working, they would be able to save on unemployment and and would have to minimally have to cut social programs.

What really happened? The casinos pocketed the extra money. They said that they had to fire these people because there was no point having all these people work if there was no need for them. They weren't just going to have employees standing around with nothing to do.

So what happens? The casinos do mass layoffs, and tons of people are put on unemployment. Now, instead of the state having this money, the casinos now do, so to pay for unemployment, Nevada and Las Vegas had to cut tons of social programs, further hurting the working class.

The casinos didn't really need this money to stay afloat. So they just were able to pocket it and weather the storm. The casinos that could have used this money to stay afloat went bankrupt any way.

If this sounds familiar, it's because it's now called "Supply side economics" or formally "Trickle-down economics". See the flaw with this theory is that while you are increasing supply side capital, the demand still remains at the same purchasing power, so there is no need for the supply side to increase production. They simply pocket the money instead. If hiring a new employee actually made the company more money, they wouldn't need a tax cut to do it. If this new guy brought us in 100k a year and he costs 80k to hire, we can get a loan if need be to hire him. It's a no brainer.

The counter argurment is that the casinos should have saved some of their annual profits in long term preparation of a recession, rather than constantly trying to scale out, and when a rescission comes, and going to the state for assistance. This would allow the state to not have to cut massive social programs hurting the working class massively.

There is yet another counter argument to this, but that takes forever. If you can figure it out, I wouldn't mind discussing it.

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Now, there are effective tax cuts, but execution is key. So it's clear that short term tax cuts in specific instances are useful. For example, a small business, or a large one that needs it to stay afloat and get through 2 more years. But aside from that exception, taxes require 2 things to be useful for business (as well as average households):

1. they have to be permanent. If they are short term, the extra revenue isn't fixed into the long term business model (the Bush tax cuts are a perfect example of this). For a new tax to be effective it has to be long term or even permanent. If it's short term, business and people look at it as some extra pocket cash, and overall, businesses tend to save it and pocket it, rather than use it to expand (there are many examples of this if you'd like me to get into it).
   
   Sometimes -- actually often -- the government tries to use taxes as an incentive. For example they will say, in 2013, we want to reduce carbon emissions. So for every business in this industry that stays below X level of emissions, we will give you a 10,000-50,000 tax credit. Most companies aren't going to shoot for this new emission standard if they are above it. They wont be paying any NEW taxes if they don't follow along, and their business model is already set. There really isn't much incentive to restructure their business just for a 1 year tax cut. Meanwhile, those that naturally are already under X emissions will see it as a free money. They aren't going to reinvest this capital into creating more jobs, because next year, the tax credit isn't going to be there, and how are they going to pay for that new employee they hired? If that new employee would actually bring in the company more than it cost him, they would hire him any ways, regardless if they had a tax break. So the tax cut is ineffective.
   
   A similar failure in this sense is Obama's Cash for Clunkers program. Not the same, but similar in the sense that it didn't change behavior enough to outweigh the cost.
   
   
2. They have to be simple and clear. Confusing tax cuts that are complicated, rarely get the intended effect. Usually, taxes of this nature are, again, to encourage or discourage a type of behavior. But often, these tax breaks are so complicated that a business doesn't even use them, because they don't even understand them, and in most cases where they are used, they are just being abused.
   
   
   Uggg.... I just realized how long I am getting this and I really didn't want to get into this complicated subject, so I am going to stop now. But if you have any specific questions, feel free to ask. Also, check out that book I linked. It's a great read, extremely interesting, explains everything very clearly, though it's a tad difficult at times (in terms of information overload).
   
   Cheers,