[JLS]

Unfortunately you are basically confusing two concepts in economics.

1. Velocity or turnover rate of money is the number of times a dollar in circulation is spent in a particular time period. That includes turnover by the government. Just because the some kid wastes his money on a M.Mather CD or the government wastes its money on paying someone who does nothing does not mean the money is not turned over. The money the government wastes, ie spends for no good reason, is still received by someone who can turn it over again. You are basically assuming that once the government gets money they burn it rather than spend it.

2. Tax cuts provide incentives for people to do certain things. Income tax cuts provide incentive for workers to work more. Income tax cuts provide incentive for capital goods owners to invest more. Investment might involve spending money for a capital good, but it does not necessarily change the turnover rate of money. That is after the income tax rate cut, someone may buy a new printing press for their business rather than a sailboat for themselves leaving the turnover rate of money unchanged.

[ffusco]

Great explanation. What do you think of this analogy?: Money taxed is generally spent for near term goals or wasted by beauracracy. Money not taxed has a greater chance of being productively used or invested. I.E.buying lumber, employing carpenters and building a house. The house adds value to the GNP so more money must be printed to prevent deflation.