I’m in Slovenia where I just finished indoctrinating educating a bunch of students on the importance of Mitchell’s Golden Rule as a means of restraining the burden of government spending.
And I emphasized that the fiscal problem in Europe is the size of government, not the fact that nations are having a hard time borrowing money. As explained in this video, spending is the disease and deficits are one of the symptoms.
This is also an issue in the United States, and Steve Moore of the Wall Street Journal is worried that the GOP ticket is debt-obsessed and doesn’t have sufficient enthusiasm for lower tax rates and tax reform.
Stylistically, Paul Ryan’s Republican convention speech last night was a grand slam. …But was it the growth message that supply-siders wanted to hear, or debt-clock obsession? There were clearly apocalyptic claims. “Before the math and the momentum overwhelm us all, we are going to solve this nation’s economic problems,” said Mr. Ryan in reference to the federal rea ink. “I’m going to level with you; we don’t have that much time.” …In fact, he talked about turning around the economy with “tax fairness.” Ugh, that’s an Obama term. …Larry Kudlow of CNBC and a former Reagan economist tells me, “Paul’s speech just didn’t have the growth, tax-cutting message. We didn’t even get the words tax reform. I don’t know what happened, but it worries me.” It’s a question of priorities. Are Mitt Romney and Paul Ryan signaling that they will put spending cuts ahead of pro-growth tax-rate cuts?
I share Steve’s concern, but with a twist.
I’m not worried that the Republicans will put spending cuts ahead of tax cuts. I’m worried that they won’t do spending cuts at all (even using the dishonest DC definition) and therefore wind up getting seduced into some sort of tax-increase deal that facilitates bigger government.
As a general rule, it is always good to do spending cuts (however defined). And it is always good to lower tax rates. And if you can do both at the same time, even better.
But since I have low expectations, I’ll be delighted if we “merely” manage to get entitlement reform during a Romney-Ryan Administration. That would mean some progress on the spending side and presumably reduce the risk of bad things (like a VAT!) on the revenue side.
[…] since it’s good to reduce tax burdens and also good to restrain spending, it’s a win-win situation to combine those two policies. Sort of the fiscal equivalent of mixing peanut butter and chocolate in the famous commercial for […]
[…] Spending Cuts and Tax Cuts Should Be an All-of-the-Above Option, Not an Either-Or Choice […]
When are we going to see REAL SPENDING CUTS? I am tired of this being talked about but not done. Another great article. Keep up the good work!!
[…] Spending Cuts and Tax Cuts Should Be an All-of-the-Above Option, Not an Either-Or Choice […]
All of the above, and it still won’t be enough.
There is no “compromise”. There’s the 5% annual growth that human GDP is growing at, there’s the old American 3% growth trendline, the new 2% growth trendline after the Obama changes, And then there’s the 1-2% European growth trendline that America will have when Obama has completed the HopNChange EuroAmerica transformation.
Bottom line dear Americans, unless you ramp up to a 5% growth trendline you can kiss American exceptional prosperity goodbye. And what we are reduced to arguing here is whether we quickly fall to the 1-2% EuroAmerica growth trendline with the rest of Europe under Obama, or whether There is that one in fifty chance that Romney and Ryan are elected, somehow prove to be new Reagans, reverse twelve years of Bush-Obama and we return to 3%-3.5% growth rate in a 5% growth rate world. I mean, patriotism is ok but can’t you see that it’s over? Enjoy the Obama ride down now stay cozy warm by burning the furniture and prepare to jump ship. Or at least teach your children how to.
Oh no I know it won’t be that bad. Paul Krugman will pull macroeconomic rabbits out of a hat and maintain 6x world prosperity from a population that is as motivated as the rest of the world. Top world prosperity on welfare state effort-reward curves. One has to be uniquely naive (as Americans notoriously are) to believe such nonsense.
So that’s where we’re going folks… And the stupidest thing of all is that Americans think they have somehow embarked on a new American pathway. Effort-reward curves as flat as the world average but 6x prosperity. What a joke! They cannot see that they have simply matured enough as a culture to finally be gobbled up by the sirens of prosperity through flatter effort-reward curves just like many one other cultures before them. With songs and flags, on they march to hope… Into the dustbin of history
Spending cuts are the most important. If spending falls below revenue, then taxes can be cut (though that needs to be weighed against paying off the debt). However if it doesn’t, then taxes shouldn’t be cut since that merely leads to more borrowing which merely takes resources away from the private sector in a different fashion. An investor can’t lend the same $ to a private company and to the government. Each $ lent to the federal government is a $ not invested in a private company. A $ borrowed now leads to interest expense, which compounds (and usually rates won’t be this low) so it costs more in the long run.
Libertarians are aware that paycheck withholding of taxes leads people to be less aware of how much they spend on taxes and allows the government to raise them more easily. If the government is allowed to borrow money so it can increase spending without raising taxes, politicians are similarly able to spend more without the pain being as visible in the form of needing to raise taxes as well. They are more likely to fall back into that game of increasing spending too easily if we let them borrow. It would be better to postpone tax cuts to get the deficit to $0 and then enact policies to make it difficult for them to ever borrow again except in the most extreme emergencies. (arguably postponing tax cuts til the debt is $0).
Tax reform is a different matter (e.g. cutting capital gains and corporate taxes and making up the difference elsewhere).