year ago January what a moment! the two parties were in a tax
cut bidding war. Each side was attempting to gain political advantage
by trumping the other guy's proposal. Everything was on the table:
capital gains tax cuts, income tax cuts, inheritance tax cuts, and
every manner of tax credit.
everyone stopped cold. What about revenue neutrality, the sacred
doctrine that government revenues can never go down? Budget committee
head John Kasich called a time-out. Congress won't cut taxes, he
said, until cuts are "paid for" with spending reductions.
ended the Republican revolution. What followed was 18 months of
haggling about projections, assumptions, and base years, but still
no tax cuts. The next time the subject of taxes came up, it was
in the context of an overall budget agreement that Clinton was foreordained
Republican were not even able to hold Clinton to his word on small
items like the per child tax credit. Everyone in Washington is on
record as favoring a tax cut, but it somehow never arrives. It won't until
we toss out the malicious doctrine that keeps tax cuts at bay.
neutrality" has turned fiscal policy into, at best, a pointless
exercise; at worst, a deeply dishonest shell game. We cheer when
they propose a low tax, but look at the fine print. It's accompanied
by higher taxes elsewhere. Grant a tax credit for adoption, and
business taxes go up. Cut gas taxes, and other excise taxes go up.
What's next? Cuts in the inheritance tax, "paid for" by an increase
in the gas tax? Maybe the per child tax credit can be "paid for"
by repealing the adoption tax credit.
is supposed to be purpose of this nonsense? The total burden of
taxes remain the same no matter what. Is it too much to ask that
the federal government take less from the private sector overall?
If so, Republican slogans about cutting the size of government will
be forever empty. You can't cut government without cutting its income.
doctrine of "revenue neutrality" is a leftover from George Bush's
1990 budget agreement, which raised taxes, arguably lost him the
election, and discredited the party. Part of the deal was that any
increase in spending had to be accompanied by an increase in taxes;
likewise, any decrease in taxes had to be matched by equal decreases
sounds reasonable at first to treat the federal budget as if it
were a household. But it's not. The federal budget is a vast property
redistribution machine. Politicians are glad to "pay for" a tax
break by raising taxes elsewhere. It's not coming out of their income,
but ours. The "deficit" is more and more a fiscal fiction designed
to cover this fact.
the point of view of taxpayers, a tax cut is not "expensive," but
a way of allowing people to keep more of what is rightfully theirs
in the first place. What's expensive is the idea that taxpayers
should be forever on the hook to fork over the same percentage of
the national income year to year.
another fallacious assumption behind the doctrine of revenue neutrality:
Congress can predict what people will do before and after tax changes.
In fact, the tax take is strongly influenced by people's behavior,
which in turn is affected by the marginal rate and the overall level
the gas tax. If people cut their driving by 20 percent, the revenue
derived from the tax would fall. But is it possible that deep cuts
in the gas tax would cause the price to fall, increase demand, and
thus increase overall revenue? Of course, but Congress's models
don't even consider the possibility that demand can change when
the price changes.
is true for every tax. If the inheritance tax were cut dramatically,
people's incentive to accumulate property would increase dramatically.
It's even possible that lifetime savings could go high enough to
offset the revenue losses of the tax cut. So it goes for the income
tax and every other excise tax.
let's say this so-called Laffer Effect doesn't kick in and total
revenue falls. Lower revenue means government has become less a
burden on the American people and the economy is that much freer.
We should be as happy about a falling tax take as we should be about
a falling crime rate. Each makes people that much more secure in
their person and property. A fiscal loss to government is a property
gain to everyone else.
course, deficits don't represent the best of all worlds. They crowd
out private investment, tempt the Treasury into monetizing debt,
and drive up interest rates. Balanced budgets, so long as both spending
and taxes are low, are joys to behold.
the reason we live in the age of deficits isn't because taxes are
too low. Government has been freed from the obligation to back the
currency with gold. It's no coincidence that the last time the budget
was balanced was in 1969, when gold still restricted the Treasury's
ability to pile up debt.
then, the deficit has furnished the excuse for Congress not to do
what it should have done, which is lighten the terrible tax burden
borne by individuals, families, and businesses. It is taxes (not
deficits) that have shackled the economy and continued to frustrate
the dreams and ambitions of the middle class.
deficits are determined by factors over which the political class
has very little control, like economic growth, the size of the underground
economy, and the percentage of people receiving wages and salaries.
Yet every day in this Congress, Republicans pretend as if they can
know for sure what the future of both taxes and spending portends.
time to trash the 1990 budget deal, which must have been concocted
by an evil genius. It's the only budget agreement in the last two
decades that anyone's bothered to adhere to. So long as this is
the case, leviathan will and grow, and the Republican promise to
reduce the size of the government will be merely a cover for the
exercise of political power.
hear less talk about deficits until we are freed from the tyranny
of "revenue neutrality," freed from the desire to replace one source
of revenue with another, and freed from $1.7 trillion budgets. A
deficit hawk can keep the rodents away, but he can also sink his
claws into our backs and neutralize us, as the CIA used to say,
with extreme prejudice.