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Source link: http://archive.mises.org/2500/tax-cuts-big-government/

Tax Cuts = Big Government

September 21, 2004 by

A good op-ed piece appears in the NYT today by New York University law professor Daniel Sahviro. Far from shrinking the size of government, Bush’s tax cuts only fuel its growth. He writes:

“The growing federal debt is virtually certain to lead to offsetting tax increases down the road. Does anyone really believe that in 10 years, when Social Security and Medicare benefits are imminently threatened, Congress will not try to increase revenues to keep the benefits flowing a bit longer?”

This is a point that conservatives need to be re-taught over and over again. Tax cuts without the accompanying spending cuts do nothing to shrink the size and scope of the state.

{ 13 comments }

Dennis Sperduto September 21, 2004 at 11:59 am

“This is a point that conservatives need to be re-taught over and over again. Tax cuts without the accompanying spending cuts do nothing to shrink the size and scope of the state.” Of course, this statement is true. But does anyone believe that the left wing, especially those of the NYT persuasion, would actually cut spending. That is absolute folly. What we would have is similar or even greater levels of overall spending. Yes, the breakdown of the spending would likely change, but its overall level would not decrease, possibly even increase. Just think of all that the government still needs to spend on health care and education, to name only two pet projects of the left. Furthermore, I have never heard a liberal honestly speak of reducing the size and scope of the state; in their view, liberal big government is our savior. Of course, conservatives have shown time and again that they are no better at exerting even modest fiscal discipline, and any talk from them about reducing government is just that, talk.

Jude Blanchette September 21, 2004 at 12:08 pm

I never said that the left would advocate and politicians would implement any type of spending decreases. However, that does not mean that we should not be hammering conservatives on the dangerousness of cutting taxes without spending cuts. If you can’t cut spending then you don’t cut taxes (unpleasant as that may sound). Milton Friedman famously quipped that he never met a tax cut he didn’t like. That’s the wrong (and reckless) attitude.

James Tauber September 21, 2004 at 1:46 pm

I thought Milton Friedman also said “A tax cut isn’t a tax cut unless it’s accompanied by a spending reduction — it is simply a deferred tax”

Dennis Sperduto September 21, 2004 at 1:57 pm

Jude,
I did not mean to imply that you believe the left would show spending restraint; I regret if that is how my comment sounded. The point I was trying to convey is that given the political and economic ideology of the NYT, it is somewhat disingenuous of them to publish an editorial critical of the national debt. Maybe the debt would be modestly lower under a liberal administration, but taxes would be higher and there would be no appreciable, if any, change in overall spending. And I fully agree with you that “conservatives” should be severely and constantly criticized for cutting taxes without also cutting spending. Conservatives too have made a mockery of spending discipline.

V Harris September 21, 2004 at 10:23 pm

As an institution of economists, how about approaching the pending financial crunch with proposals to manage the crisis by unwinding the federal leviathan?

The enormous unfunded liabilities present an opportunity for the Mises Institute to be on the forefront in proposals for managing the economic collapse.

For instance, suppose spending continues to increase and taxes continue to decrease. As the point of crisis approaches, Mises economists could propose:

Terminating Social Security, Medicare and Medicaid programs.

Calculate the unfunded liabilities in the programs.

Auction off public land (in lump sum, or in annualized revenue streams) to pay off the liabilities.

Terminate government agency programs like Education, Health, OSHA, etc.

Terminate government monopolies like Post Office, space exploration, etc.

Abandonment of lowest priority US government military interventions around the globe.

Cato already advocates some of these, but I’m not sure they put together the economic analysis.

Mises should have the US Economic Crisis Management Plan ready to ‘go to the presses’ (along with plan B, etc.).

It should be updated regularly.

The important political component would be to guarantee payment of the unfunded liabilities to the key voting blocks. Politics will drive the process, and each economic recommendation should always be evaluated in terms of political practicability.

If no crisis materializes, there will be little chance of change, but if a crisis does develop, there will be significant opportunity to have considerable influence in how the process is managed.

Any thoughts?

V Harris

Roger Neth Jr September 21, 2004 at 10:45 pm

Tax cuts without spending cuts give tax cuts a bad name. Liberals have never found a good time to have tax cuts. Spending cuts to Washington D.C. is not an actual cut in reality but a small decrease in the growth of government for a small period of time.
Regan’s tax cuts received a bad name because the democratic congress did not cut spending to match the tax cuts.
Conservatives also do not cut spending as witnessed by the Republican congress and the huge expansion of government in the name of homeland security. I read in Robert Higg’s book government has grown 12,000% in a short period of time.
Ratchet theory.
My .02 now down to -.02

Roger

Michael September 22, 2004 at 1:40 am

Are you libertarians or socialists?

Do I have to explain the concept of “net present value” to you supposed economists?

I want my tax cuts NOW — the future be damned. Give me my money now, and if government tries to raise taxes in the future, maybe I’ll just up and leave the country, or make some other decision when we get to that bridge.

Libertarians arguing to keep more assets under the control of the government now, because if we don’t, then in the future we might have to give even more still to them? Is that the argument? And you people are pretending to be subjectivists? You’re aggregating individual evaluations of costs and benefits.

I swear, the Austrian movement has been hijacked by leftists.

Jude Blanchette September 22, 2004 at 8:29 am

Michael,
I appreciate your intelligent and civil comments which have helped to elevate the debate beyond mere sniping. Regarding your comments; I, for one, plan to stay in this country for quite some time and consequently, what the government implements now is certain to impact me and my family in the future. No, you do not have to explain to me “net present value” (this was done quite adequately for me while studying economics under Dr. Tom DiLorenzo). However, it seems I may have to explain to you the inherent danger of deficit spending. What happens if the Fed monetizes the debt? What will happen when the government borrows domestically? When it sells its debt abroad? You say “the future be damned.” Keynes would heartily agree. Henry Hazlitt, however, implored us to look at the long run consequences. There are many problems associated with running deficits. It pains me to advocate against giving individuals more of their money back, but we cannot loose sight of the dangers of inflation in an economy.

Socialist Leftist September 22, 2004 at 9:10 am

As a socialist I agree with the NYT and Mises.org.

That is why we should raise taxes 100% TODAY. Michael you fascist, do you really think you can do more with the money than the State? You fascist idiot. Do what Mises.org says you neocon.

The State will get it anyay. So c’mon, pay up!

Chad Bull September 22, 2004 at 9:08 pm

HON. RON PAUL OF TEXAS
BEFORE THE US HOUSE OF REPRESENTATIVES
June 24, 2004

excerpt from:

A Token Attempt to Reduce Government Spending(Link)

The only way Congress will cease excessive spending is by rejecting the idea that the federal government has the authority and the competence to solve all ills, both domestic and international. If the last century taught us anything, it was that big government cannot create utopia. Yet, too many members believe that we can solve all economic problems, eliminate all social ills, and bring about worldwide peace and prosperity by simply creating new federal programs and regulations. However, the well-intended efforts of Congress have exacerbated America’s economic and social problems. Meanwhile our international meddling has failed to create perpetual peace but rather lead to perpetual war for perpetual peace.

Every member of Congress has already promised to support limited government by swearing to uphold the United States Constitution. The Constitution limits the federal government to a few, well-defined functions. A good start toward restoring Constitutional government would be debating my Liberty Amendment (H.J.Res. 15). The Liberty Amendment repeals the Sixteenth Amendment, thus eliminating the income tax the source of much of the growth of government and loss of individual liberty. The Liberty Amendment also explicitly limits the federal government to those functions it is constitutionally authorized to perform.

If Congress were serious about reining in government, it would also eliminate the Federal Reserve Board’s ability to inflate the currency. Federal Reserve policy enables excessive government spending by allowing the government to monitorize the debt, and hide the cost of big government through the hidden tax of inflation.

buzzo September 22, 2004 at 10:31 pm

Socialist Leftist, you crack me up.

Jude and V. Harris, your optimism is impressive, but these “thinking about the future” arguments give gov’t waaaaay to much credit. V. Harris, I have not interest in “managing” society as you seem to. Jude, this ship is sinking – regardless of spending.

Government debt is nowhere near as dangerous as federal banking, and the fact is that this house of cards will probably fold pretty fast when a strong enough wind comes along. No, I’m not too worried about government spending, or taxing, or tax cuts, because I am convinced that it won’t make too much difference.

The only thing we can do is devolve, seceed get out while we still can! It’s time for a new order. A natural order of free markets and private property. The end is near!

Thomas Kuhlman November 6, 2004 at 9:22 am

I can’t stand to see this false representation of the national debt continue. In essence the national debt is borrowing from ourselves. The large majority of it is not foreign investors, but ourselves. The real issue in debt is personal debt not national debt. The average American has 25,000 of debt. The personal debt is what can drive our economy out of whack. When they can’t pay off loans, it hurts everyone from the banks upward. Tax cuts can help relieve this burden as it is proven that most Americans spend their money that they get back on their debt. The core reason we have a debt is trust in the government. People buy bonds from the government because they believe it is good for it. Trust in the government isn’t a bad thing, It’s good.

Chad, I agree with your proposal of the liberty amendment, however I believe that is the major flaw in the Libertarian party. Libertarians believe they can get away with rash movements, but the majority of Americans associate themselves with one of the two major parties. Until The Libertarian party learns to compromise with issues, they will never be a major party.

In summary, tax cuts really have to do with where one believes we are on the Laffer curve. We must also not forget that there is no utopia in capitalism, it’s all about making losses minimal and gains minimal too, we must not forget that the 90′s boom was a bad thing since the last time an economy has gone that far without bouncing was the Great Depression.

Florida Mortgage November 8, 2004 at 12:05 pm

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