Tax-Cutting Republicans? Get Real

Put aside for the moment the current Republican presidential candidate’s tax plan, which imposes higher taxes on 250 million Americans than the Democratic candidate’s plan.

The simple fact is–as innumerable sages (at least since Adam Smith) have pointed out–spending is taxing.

Three choices (laid out very nicely by Brad DeLong):

  • Raise taxes in the future.
  • The delay (Delay?) strategy: tax via interest payments. (And the more you borrow, the higher the interest rates, so–despite any arguments for Ricardian Equivalence–the less value to the taxpayer.)
  • “Print” money, and tax via inflation.

Alexander Tabarrok also laid it out very clearly, back in 2003:

President Bush has neither proposed nor implemented a tax cut–only a tax shift. … sooner or later taxes must increase (or inflation, a type of tax, will go up). Milton Friedman, the libertarian-leaning Nobel prize-winning economist, has long reminded us to be suspicious of any tax cut not matched by a spending cut. … they have a secret Machiavellian argument held in reserve. The Bush deficits, they believe, will force future administrations–presumably of a more liberal bent–to cut spending. … conservatives seem to believe that the public does want big government and that the only way to curb government growth it is to fool the public with lower taxes today so that the costs of government will be so high tomorrow that no one will accept the offer. How cynical. … we have two political parties: the Tax and Spenders and the No-Tax and Spenders.

Better: the “Borrow and Spenders.” Tabarrok is arguing for less spending. But the simple fact is, this is the government we’ve chosen. It can be tweaked (and in some areas severely pared) in very good ways, but the big picture is not going to change any time soon.

We have to pay for the government we’ve chosen, sooner or later.

“Starving the Beast” is delusional at best. At worst, it’s just cynical vote-buying using imaginary “tax cuts.”

Tabarrok is concerned that “taxes will have to rise 50 percent on a lifetime basis (assuming we don’t cut benefits severely).” That would boost our taxes to 42% of GDP (local, state, federal combined), up from the current 28%. That’s two percent above the European average over recent decades. (We could attribute those extra two points to paying off interest from the Delay strategy.)

Europe is not going down in flames; life is good over there. People have time to spend with their families, health care for their children, and reasonable security from personal economic disaster.

And over recent decades (as I point out with annoying regularity), GDP-per-capita growth in Europe has been the same as in the US (after growing much faster in the post-war decades, despite much higher taxes).

The sad story: because the tax-cut pander has been so ingrained into Americans’ psyches by decades of Reagan-revolution rhetoric–and because it has been such a succesful vote-buying strategy–Democratic candidates have to match–actually exceed–the Republicans to get elected. Their only wiggle-room–which Obama’s tax plan embodies–is apportioning those taxes in a way that is truly pro-growth.