“Tax cuts for the rich!” That’s always the complaint whenever a Republican proposes reducing the heavy tax burden that we must share in order to fill the government’s coffers long enough to pretend that there’s a non-negative net balance. “Government can’t afford a tax cut!” That’s another refrain. “If you cut taxes the deficit will grow!” is another. All three of these statements, typically uttered by Democratic politicians are of course correct, but for the wrong reasons.

First, regarding “tax cuts for the rich”, it’s only natural that whenever a Republican proposes a tax cut that it will be a tax cut for the rich. This is because, poor people don’t pay taxes, and a large segment of the “middle class” don’t either. Yes, there’s the regressive “payroll tax”, but you’ll never hear a call even from a Democrat to cut that tax. In fact Representatives Jim McDermott and  George Miller (both Democrats) want to do away with the tax breaks (actually, tax deferrals) on 401(k) plans and instead make everyone pay a mandatory five percent into an expanded social security program, one that will only pay three percent per year on the money. That’s actually going to hurt the “middle class” because without the tax incentive, employers aren’t going to be inclined to “match” employee contributions, resulting in less net investment into retirement programs.

Second, regarding the notion that “government can’t afford a tax cut”, of course it can’t. Our federal budget is so large that we have to have massive taxation to cover it. But I think that Democrats have looked at this the wrong way for decades. Every time tax cuts have been implemented, the federal government has ended up raking in more tax revenue than before the tax cut. Of course at some point the law of diminishing returns will have to kick in. After all, if you reduce taxes to zero, you’re not going to take in any revenue, but as it stands now taxes are still too high.

Finally, regarding the notion that “if you cut taxes the deficit will grow,” that’s most definitely true. But I offer the counter argument that “if you raise taxes the deficit will grow.” There’s a simple reason for this, and that’s that the federal budget continues to grow at a rate that outpaces revenue growth. The notion of a real spending cut is foreign to our government. When we hear about a proposed spending cut in any part of the budget other than the military (one of the few things in the budget that the Constitution actually permits and treats as a federal duty), it always seems to carry the adjective “draconian.” Most of the time, these so-called spending cuts are nothing more than a reduction in the rate of increase of spending anyway. Think about it, if you are increasing the budget for a program by 10% per year, and you decide to change the rate of increase from 10% to 8% our politicians call that a spending cut. But really, what it is is simply a smaller than anticipated spending increase. After all, you’re still increasing the budget by 8%.

Well, finally, a politician has got it close to right. In the Seattle Post Intelligencer (hmm… is that anything like “post racial”? Have they moved away from intelligence?)  today, I found this article. Here’s a highlight.

CLEVELAND — Republican John McCain promised Monday to break with President Bush’s policies on the economy and put a tight lid on government spending.

Flanked by some of his economic advisers, the Republican presidential candidate bashed Democratic rival Barack Obama, but also made clear he would steer a different course than the current GOP administration.

"We both disagree with President Bush on economic policies," McCain said. "My approach is to get spending under control. The difference between us is he thinks taxes have been too low, and I think that spending has been too high."

What do you know. Someone finally got it right. Cut government spending — really cut spending — and we might get our economy back on track. We’ll certainly reduce the deficit although it will take years (decades actually) to eliminate the federal debt. It would be a shame after all to have the people that hold that debt to foreclose on it, just like foreclosing on a bad mortgage.

Cut spending. Maybe that way our children and grandchildren won’t be left holding the bag for our foolishness today.

http://perrinelson.com/2008/10/27/1267.aspx

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