Monday, January 28, 2008

Fiscal Sanity Does Not Include Tax Cuts That Pay For Themselves

I was just reading a post over at The Scratching Post about how tax cuts don't pay for themselves (post).

Is that a surprise to anyone? Sure the validity of the Laffer Curve is real (although anyone that thinks it is as smooth as the wikipedia graph, or stationary in time, is on some serious recreational chemicals). The point though should be two fold: 1) Unless we are way over on the extreme right end of the graph, don't expect a tax cut to pay for itself, and 2) It is very possible to cut taxes and see a rise in revenues.

Indeed, I believe we are past the maximum in the curve and recent history suggests that this is indeed the case, still, we are not anywhere near the point at which a cut in tax rate will pay for itself.

But beyond that, and as I posted in my comment over at The Scratching Post, regardless of where anyone thinks we are on the curve, the bigger question is: Should the tax rate be set to maximize revenue? If you think so, Why? The only reasonable case that I can make for such a belief is that if the government has costs, costs it must incur, which total more than it can raise in revenues, then they must, to try to cover costs, maximize revenue. Otherwise, the goal should be to tax the people to the minimum possible extent, yet which still generates sufficient revenue to cover the costs the government must incur.

So what would those items be? Well there is where the rub sets in. Personally, I'm in favor of "less is more". I'd like to see the government return to those things that are required of it. You know, "form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity". That kind of stuff.

Does anyone out there think that huge deficits are securing anything for our Posterity? I don't.

1 comment:

K T Cat said...

Thanks for the link! I think that Reagan's tax cuts were a different story as they dramatically changed the tax structure. If I recall, the highest tax bracket was something like 90%.

Do you suppose I'm seeing it through Reagan-rose colored glasses?