Commentary: Time for Tax Cuts

What do you do if you find a fat wallet in the street, apparently lost? It has identification in it, so you know whom it belongs to, but it also contains a lot of money.

There are tempting alternatives. Keep the money, and throw away the wallet.  Keep the money, and return the wallet, claiming there was no money in it when you found it. You might even contact the owner and try to negotiate a reward for its return. But to the moral person, there’s really no choice. You return it to the owner, who may or may not decide to reward you.

Many of our legislatures, at both the state and federal levels, were faced with this problem during boom years not that long ago. They set a tax rate that was supposed to cover their budgeted expenditures, and a robust economy brought in more revenue than they had expected. And of course, being moral persons, they returned the surplus to the taxpayers.

Well, that may have happened somewhere, but not to my knowledge. What I saw was legislatures pretending they didn’t know whose money it was, and finding new things to spend it on. Expenditures they could not justify in the normal budget process, they now did not have to justify so carefully, because of the unexpected windfall.

This is how governments work in good times, even when the surplus is predictable. If tax revenues are expected at above-normal levels, politicians see it as an opportunity to fund optional items, things that aren’t really necessary. Who will begrudge them when revenues are strong? Tax cuts? They are not necessary, after all, people are doing well.

What happens when tax revenues fall short of expectations, because the economy turned weak? Then the politicians argue for more money. “We can’t cut essential services, now, when people are depending on them more than ever.” “We must spend to stimulate the economy.” Tax cuts? They are not possible, after all, when people are doing poorly.

It’s like the lazy homeowner, or unscrupulous landlord, if you prefer that scenario, who refuses to fix a leaky roof. (“Can’t fix it now, in the rain.” “It’s not raining now.” “It’s not leaking now.”) It’s never the right time for a tax cut.

That’s why the tax cutters must remain firm against the tax-and-spenders and the class warfare mongers  who propose a compromise, a little spending reduction along with a little “revenue enhancement.” The spending reductions always prove to be illusory, or at best a temporary reduction in the rate of growth of spending, while the tax increases quickly become firmly entrenched, its beneficiaries ready to resist any future reform. We don’t have a revenue problem, we have a spending problem.


Do you agree with this commentary? Disagree?  Leave a comment and join the discussion.

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Posted in Economy, US
One comment on “Commentary: Time for Tax Cuts
  1. Daniel in Brookline says:

    I’ve heard a proposal that I like very much. (I’d give credit, except that I don’t remember where I first saw it; sorry.)

    Our federal government, from President Obama on down, has been telling us to tighten our belts; we must make do with less and work harder. Very well, Mr. President, let’s have the same apply to the federal government. Let’s have a 10% budget cut, across the board; no exceptions, no loopholes. Every department will have to figure out how to make do with 10% less money. (Let’s face it — having 90% of the money they used to have would sound really, really good to a lot of Americans right now.)

    Because such a cut would be across the board, it would be bipartisan, cutting Republican and Democrat pet projects alike. And the screams of outrage from our self-appointed privileged class, claiming that they just can’t handle a budget cut, will send a useful message to voters, just in time for the 2012 elections.

    In fact, Mr. President, let’s truly make this across the board, starting with a 10% cut in salaries — for all Senators, all Congressmen, all Cabinet posts, and for you, sir. Any one of you who can’t handle a 10% pay cut, in these trying times, is more than welcome to stop feeding at the public trough, and slug it out in the public job market with the rest of us.

    And if this is seriously proposed, and the President rejects it, it says something about his priorities, doesn’t it?

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