The Times on Tax Cuts

The Times' editors want a "real" debate on taxes. The problem with their debate is that they take some fallacies as absolute truth:

- That the government can create jobs;

- That Keynesian spending is the way to produce wealth;

- That the money you earn is yours to keep only by permission of the government;

- That a shortfall in government revenue (debt) is a result of taxes being too low;

- That it is the duty of the government to "run" the economy.

It makes sense to extend (the Bush tax cuts) temporarily, because the weak economy needs the boost. But more (government) revenue will be needed in years to come to keep rebuilding the economy and meet health care and other obligations to retiring baby boomers. That means more Americans — and not just the rich — are going to have to pay more taxes. For all the politicians’ talk about deficits, no one is saying that.

- The government's attempts at "rebuilding" the economy are only making things worse. If government spending produced robust economies, why shouldn't they just print gobs of cash and spend like crazy?

An honest debate needs to start with the numbers. The tax cut packages of 2001 and 2003 — heavily skewed to high earners — cut taxes by $1.65 trillion. In 2001, supporters argued that with the budget in surplus, the cuts were affordable. In 2003, they argued that the cuts would spur investment and growth and pay for themselves.

- Notice that the "numbers" are how much of their earned money American's were able to keep, not the amount spent by the government. Then the tax cuts are referred to as a "cost" to the government, as if it had generated that wealth and is doling it out. Whether the cuts spurred investment or not is irrelevant; it is the right of the individual who created that wealth to keep it.

Since 2002, the federal budget has been chronically short of revenue.

- "Short of revenue" - why not long on expenses?

According to calculations by the Center on Budget and Policy Priorities, if the tax cuts of the Bush years had never been enacted, publicly held debt at the end of 2009 would have been about $5.2 trillion, or 37 percent of gross domestic product. Instead, it was $7.5 trillion, or 53 percent of G.D.P. (it now stands at 60 percent).

- This presupposes that the economy would have grown at the same rate had the tax cuts not been passed. Again, spending is the issue.

The center estimates that if tax cuts and other current policies continue, debt would equal 90 percent of G.D.P. by 2020 — with 20 percent of that debt attributable to forgone revenue from extending the tax cuts.

- They claim the debt is caused, not by spending too much, but by taxing too little.

The truth is, the Bush tax cuts were not affordable when they were passed and they are not affordable now.

Tax cuts for low-, middle- and upper-middle-income taxpayers should be temporarily extended because those taxpayers tend to spend most of their income and the economy needs consumer spending. That would cost roughly $140 billion next year, but the spur to the economy is more important than the budgetary impact. Tax cuts for the rich can safely be allowed to expire because wealthy taxpayers tend to save rather than spend their tax savings.

- This is the Keynesian fallacy that spending, not saving, is the key to wealth creation.

The revenue from letting these expire — nearly $40 billion next year — would be better spent on job-creating measures.

- The government has proven endlessly that it can not create jobs.

As the economy recovers, addressing deficits and debt will require tax reform to, finally, craft a new system that is both equitable and capable of bringing in enough revenue to pay for government.

- No mention of reducing spending. And I can't believe the Times would advocate for "equitable" taxation. That would mean at the very least a flat tax. But I'm sure they mean that the "rich" have to "pay their fair

share".

If the middle-class tax cuts are made “permanent,” as President Obama has called for, we fear Congress will never have the political will to do what is needed.

Which comes back to this year’s deadline. Instead of dodging their responsibility, serious lawmakers could strike a bargain, the first of many that will be needed to put the nation’s fiscal house in order.

- The nation's fiscal house is not in order due to government interference, from deficit spending to artificially setting interest rates to printing money to fractional reserve banking to bailouts to subsidies... I advocate for not only keeping the tax cuts in place, but to cut the tax rates more (to zero, as if). And stop the spending!