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NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Naïve Tax Cuts vs. Naïve Stimulus



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A little late to this party, but a couple of people asked me to comment on the Jon Kyl/Mitch McConnell tax-cut business. As Dan mentioned on The Corner, Senator Kyl does seem to be engaging in nefarious starve-the-beastism, while Senator McConnell seems to be endorsing naïve supply-siderism.

Kyl is particularly bothersome here:

“Who does the money belong to?” Kyl asked rhetorically. “The money belongs to the taxpayer, to the people. The money does not belong to the government, and yet that’s what this kind of a rigid paygo rule would assume: that the money belongs to the government, and therefore if you’re going to deny the government some of that revenue through a tax cut, you have to make the government whole, because the government can never lose any money. That would mean that you could never reduce the size of government. Each year, when it gets bigger, it stays at that level or it gets bigger yet, but you can never reduce it.”

You know what? Kyl is right: The money does belong to the taxpayer. You know what else? The money Jon Kyl and his colleagues are spending belongs to the taxpayer, too. Jon Kyl’s been known to pork up a highway bill in 2008 — even as he voted against one of the worst of them in 2005. (And Kyl’s one of the good ones.) If you spend the taxpayer’s money, you have to tax the taxpayer, at some point. You cannot magic that money into existence. As I’ve been arguing — ad nauseam, forgive metaxes are a secondary issue. The primary issue is spending. As ye spend, so shall ye tax. The rate of spending is the rate of taxation; debt and deficits only push the date of tax collection into the future. You can collect the taxes today or you can collect the taxes tomorrow — but what you spend, you will have to collect.

At least, somebody will. And that’s the real problem here. So long as appropriators enjoy carte blanche to spend today while deferring taxes until they’re out of office (or even until they have shuffled off this mortal coil), then they will have bad incentives, and they will act in accord with those bad incentives. That’s a pretty intuitive proposition, but there’s good empirical evidence for it, too: for instance, the performance of the United States Congress for the past 60 years or so.

Now, Republicans might as easily turn the question around and ask: How is an unfunded tax cut today different from an unfunded stimulus-spending bill today? Both increase the deficit, both perform a wealth transfer from the future to the present under the theory that doing so will increase growth and spur the economy. Both are irresponsible. Both are rooted in magical thinking: Naïve supply-siders believe tax cuts pay for themselves, naïve Keynesians believe spending pays for itself through the magic of the multiplier effect.

Tax cuts without spending cuts, spending increases without tax increases: These are not merely irresponsible, they are impossible — unless you think that nobody is going to pay the debt. You might make a reasonable case that tax cuts without spending cuts are, in some cases, preferable to deficit stimulus spending, especially since the stimulus spending has been channeled to a lot of dumb and wasteful projects. But, broadly speaking, the two things are equivalent. The Democrats prefer unfunded spending, the Republicans unfunded tax cuts. And almost nobody is serious about reducing spending, because spending is where power dwells in Washington.

Not to go all 1776 on you, but: You want to talk about taxation without representation? That’s exactly what we’re engaging in: taxing the future to meet present wants, without ever having the common courtesy to ask the future whether it wants to accept a social contract that is radically different from the one we inherited. Picture a bunch of angry babies with muskets and tri-corner hats: You think the tea-party protesters are overflowing with high dudgeon, just wait until you see the poor people who actually get the bill. They don’t get a vote, which is why we have to look after the interests of the future today. And looking after the interests of the future in the present is one possible working definition of conservatism, is it not?

I like Gov. Rick Perry’s theory of economics: Don’t spend all the money.



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