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Taxes and the Economy: A Question



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Republicans keep insisting that raising taxes now would be terrible for the economy. Now let me note right up front that I don’t want them to raise taxes, even by getting rid of tax breaks. I’d prefer, like them, to cut tax rates in exchange for the scaling back or elimination of those breaks, and to achieve deficit reduction wholly through spending cuts. But what, I wonder, is the argument that eliminating tax breaks would hurt the economy?

It can’t be that it would damage incentives to work, save, and invest. That’s the typical conservative objection to proposals to increase marginal tax rates. But eliminating (or reducing) tax breaks need not have any such effect.

Nor can it be that it would reduce disposable income, therefore aggregate demand, and therefore the size of the economy. If Republicans believed that, they would be against spending cuts too, which they plainly aren’t.



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