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Tax Cut Unreality
Jesse Richman, 12/2/2010

 "The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman." Thomas Paine

It is time for all true fiscal conservatives to come to the aid of their country. 

Some Republicans are trying to sell the myth that the Republican victory in the November 2010 midterm elections was a mandate for the re-enactment of all of the tax Bush cuts.  If the exit poll was right, it was no such thing.  According to the national exit poll, 18 percent of the electorate said they thought the priority of the next Congress should be tax cuts while 40 percent of the electorate said the priority should be reducing the deficit.  Only 40 percent of all exit poll respondents thought  the Bush tax cuts should be extended for all Americans.  With "mandates" like these as the basis for their actions, Republican claims to be "listening to America" are already looking threadbare.   

Low taxes are better than high taxes, all else equal.  All isn't equal in 2010 America, however.  In particular government receipts do not equal government expenditures.  The creators of the Bush tax cuts created a sunset after-which the tax cuts were scheduled to expire.  They should be permitted to die a natural death on December 31st 2010, with perhaps after a brief period on life-support as "economic stimulus" thereafter.

The 2000 election provided what mandate there was for the tax cuts.  The basis of this mandate was the large projected surplus the U.S. government was running at that time.  When that surplus was also spent on domestic spending increases and defense (respectively and at the same time) the U.S. government proved that it lacked the discipline to provide voters with the tax cuts it had promised.  In the face of significant structural deficits, cutting taxes will exacerbate the financial weakness of the U.S. government.  The cuts have not been paid for.  The decision to re-enact them should be premised on real offsetting spending cuts or tax increases. If tax increases are part of the offsetting mix, they should be increases in consumption taxes. 

In 2006 and 2008 Democrats claimed to be fiscally responsible.  A key element of this responsibility was to be a "pay as you go" approach to spending and taxes in which new spending (or new tax cuts) would be offset by new tax increases or spending reductions.  As recently as this week, Republicans (who won election more by charging Democrats with fiscal irresponsibility than advertising tax cuts for high income earners) were standing "on principle" against an extension of unemployment benefits because they were not being paid for by spending cuts or tax increases.  The contradiction of supporting extremely large increases in the government deficit by cutting taxes when the federal deficit exceeds one trillion per year seems not to occur to members of either party.

It is time for both parties to live up to their professed principles instead of pandering and obfuscating.  If the re-enactment of the Bush tax cuts cannot be paid for by spending reductions or offsetting tax increases, then they should be allowed to expire as scheduled by their creators.  And not just the tax cuts on the wealthy -- all of them. 

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]