Yesterday's (September 15, 2012) New York Times
contained an article titled "Do Tax Cuts Lead to Economic Growth?"
that goes through the monotonous exercise of examining the various tax cuts and
increases enacted by Presidential administrations since G.H.W. Bush and how, in
the author's opinion, tax cuts have actually depressed growth, increases having
had the opposite affect. While it could
be argued that tax increases and reductions have a lagged effect on the economy
and maybe the author is just missing that point, in my opinion the whole tax
increase/decrease debate is just a giant red herring. And that's because what
really matters is the level of government spending.
In a nutshell, this is how it works: if government spending increases, the money is
taken from the private economy either
through taxes or borrowing, both of
which reduce the money available to be spent or invested by individuals or
corporations. Reducing taxes wIthout reducing spending just means that more has
to be borrowed--any increase in private activity will just be offset by the
increased cost to service the debt.
Increasing taxes will have the opposite effect.
So, getting back to the NYT article, has the
author considered how much G.W. Bush increased government spending and how,
maybe, that has had something to do with lack of growth in the private
sector? As discussed in a previous post
(Spending is THE Problem), Ronald Reagan, the patron saint of tax-cutters, believed
that, by limiting its sustenance, tax cuts would actually reduce the amount of government spending. What Reagan failed to understand was that Congress's penchant to live beyond its means could not be controlled so simply. Today's
tax-cutters don't even pretend that cutting the size of government is their
goal, being instead content to redistribute the pie based on their own personal
beliefs.
Is it any wonder that Republican tax cut
proposals are met with so much skepticism?
Without corresponding spending cuts, they will most definitely increase
the deficit. It's just math. Any benefit
that goes to one group will be equally offset by the increased liability of the
rest. The sum of the two will always be zero. And that goes for Democratic tax increases as well. Both actions--without spending cuts--are zero sum games. What both parties have embraced is simply
class warfare.
Which, finally, leads us to the most important
question, the one that really lies at the heart of the matter: Why should we care whether the government
promotes the private economy by reducing its own spending or whether it completely manages the
economy? Two words--Soviet
Union, where the government planned everything and no one produced anything.
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