A government budget, which is a set of rules regarding how we spend and what we make and how that is dispersed, requires a majority of legislators to pass a certain budget. When we run government it is because we need that money.”
The idea is that when the government cuts the number of people employed, it will spend less money on something people actually want to do, says David Sirota, who teaches government and political science at American University, in Washington.
“The problem you run into is you can only pay your employees less,” says Professor Sirota.
Some employees are hired specifically for their skills, which mean they would have to be cut if not used. Others are paid by the hour, so they would have to be cut too. Many of those people would not be worth much in the first place.
“Then the next problem is that in many ways, those people are more expensive. That’s the nature of the world in which we live,” he says.
And so “all government money goes to these people who spend it the most.”
Another way the government spends money is by creating tax breaks – some of which are well known and have been around for decades. One obvious example is the Earned Income Tax Credit, which provides tax credits to workers with low wages.
But the idea that tax money would be “totally cut” – that everyone with a job and salary would only benefit from the cuts – is a myth, says Professor Sirota. “I guarantee you, in principle, you need to cut taxes on everybody a good amount. But by cutting jobs, and by reducing the number of people with jobs, I think it is more important to spend money” to create jobs, he says.
This idea is known as a “multiplier,” and it is central to why economists say unemployment rates depend to a greater and greater extent on how much more they spend, as well as by how long the stimulus lasts.
“There’s so much evidence that the government is not spending properly” that economists cannot agree how many people should stay out of work, says Mr Carney.
But Professor Sirota has an explanation for why the tax cuts are not working. “Many people, in theory, have more income than they can claim through personal deductions, on top of other loopholes in the code,” he says. “They will not be able to write big cheques.
So they will get taxed more, while
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