Roger, you talked about a 4% growth of the American economy. Let's assume that the (very imaginary) people that I talked about in my last post each gets a 4% raise, too. How much extra money will each of them make because of the raise?

The nine million dollar guy will earn an extra 4% of his income. 4% of 9.000.000 is 360.000. This guy will earn an extra $360.000 if he gets a 4% raise! His raise alone will be more than a hundred times what the other eight people earned together, because their total income was $2310. Admittedly, that was before they got a raise. So how much will their raise benefit them?

The richest of the people lagging behind the millionaire made $1000 a year. Give him a 4% raise and he will earn another $40. I'm sure he will appreciate his extra forty dollars, but will they make a huge difference to him? I don't think so.

The median guy, Mr "Number Five", will get an extra $4, because his income was $100. What can he do with his four dollars? Buy a packet of cigarettes? Let's hope he doesn't smoke.

The poorest guy, who earned $10, will get an extra forty cents. Wow.

Let's imagine that these nine people each have to pay an income tax of 10%. That means that the richest guy will have to pay $900.000 in tax. (We will ignore the 4% raise I talked about earlier.) The one thousand dollar man will have to pay a hundred dollars. The others will have to pay, respectively, $70, $30, $10, $8, $6, $3 and $1. (Imagine earning ten dollars annually and they'll take one dollar away from you in tax. You'll get to keep $9.)

Now let's cut taxes so that everyone just has to pay 5% tax. Wow! Such a tax cut will get the richest guy an income hike of $450.000. The others will get to keep an extra $50, $35, $15, $5, $4, $3, $1.5 and 50 cents, respectively.

My point is that if you are poor, either a raise that is a percentage of your income, or a tax cut that is a percentage of your tax, will give you peanuts in real money. Peanuts.

Anyway, if the government gives my nine hypothetical persons a tax cut from 10 to 5%, the government will initially lose money. Before any dynamic effects of the tax cuts have come into effect, the government will lose 450.000 + 50 + 35 + 15 + 5 + 4 + 3 + 1.5 + .5 dollars. All in all, the tax cuts would mean that the government would have its tax revenue from these nine people lowered by $450,114.

I once read a suggestion that the government should stimulate the economy not by slashing taxes, but by giving every American citizen an extra sum of money. Just handing it out to everybody, giving the same amount to everybody.

Imagine that the government would just give these nine people an extra $5000. Just give it to them. How much would it cost the government? Giving $5000 to nine people would cost the government $45.000. Only about a tenth of the amount it would lose from giving these nine people the tax cuts I described.

But what would an extra $5000 mean to the eight poor people here, those who earned between $1000 and $10? Oh wow! It would mean so much! There would be so many little things that I'm sure that they desperately needed, that they would now suddenly be able to get for themselves.

What would an extra $5000 mean to the nine million dollar man? Exactly. It would mean pretty much nothing.

But I wonder what would be the best thing to do for the economy, or for the general welfare of the American people.

Ann