The Budget Deficit: The Three Card Monty of Political Debates

The Budget Deficit: The Three Card Monty of Political Debates
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Robert Samuelson, in an op-ed from last week, observerd that “We Americans are having the wrong debate.” He thinks the debate shouldn't be about whether the tax cuts will stimulate faster economic growth, or if the tax cut proposal is too stingy toward the middle class and the poor while being too generous towards the wealthy. Samuelson believes the “truth” is that we can't afford any tax reduction. He thinks we are under-taxed and offers proof of this by informing the reader that we haven't covered our spending for half a century. He wants the conversation to be about new taxes to reduce the deficit. He favors what he calls a carbon tax.

In a sense, Samuelson's right. The debate shouldn't be about whether tax cuts will stimulate faster economic growth. We've had that debate, plus we have history. The reductions in tax rates in the 20's, 60's, 80's and 90's led to economic booms. The high tax rates in the 30's, 40's, 50's, 70's and this past decade produced slower growth, and even depressions. He's right. That debate is over.

As far as wondering if the income tax reform bill is too stingy when it comes to the poor and middle class, I'd like to remind him that 45% of Americans don't pay any federal income taxes while the rich look like they will be paying a rate of 45% in the new tax bill. Is it really possible to demand that someone pay the government nearly half of every dollar they earn and wonder if you are being too generous? I don't think so. This also sets up the particularly weird notion that all income belongs to the government, and that they decide how to redistribute it among the people from whom they have taken it from.

Samuelson wants the debate to be about the budget deficits, not economic growth or how much of what you earn is really yours to keep. While telling us how bad budget deficits are and how important it is to balance the budget, he reminds us that Congress has only balanced the budget five times in the last fifty-six years. Perhaps something that is done this rarely is not really as important as he would like you to believe. He assures us that carefully implementing tax increases along while prudently cutting spending is what needs to be done to free us from the horrors of deficits. In his article he attributes the five times the budget was in balance: 1969, and again from 1998 to 2001 to the long boom of the 1960s, and the “tech” boom of the 1990s. He writes these booms swelled tax revenues to bring the budget into balance. If you follow his “logic” you would have to infer that raising taxes is what created the economic boom that balanced the budget. The problem with that thinking is that the economic booms of the 20s, 60s, 80s and 90s were all sparked by tax rate reductions, not tax increases. Had Kennedy, Reagan or Clinton imposed a Carbon Tax we'd be 61 for 61!

Samuelson's desire to focus on the deficit is the political equivalent of a Three-card Monty game. That third card is there to make focusing on the other two cards more difficult. If we make the conversation about taxes and deficits then we don't have to talk about government spending. Without the deficit card there is no confusion, only the choice between the spending and tax cards. Once you understand that deficits are simply the spending that the government elects to put on the U.S. credit card, it's much simpler to think about. If you are worried about deficits, then spending is too high. If you always spend more than you collect in tax revenue while claiming to pursue a balanced budget you need to raise taxes all the time. If you never spend more than you take in, you never need to raise taxes and your budget will always be balanced.

Let's take him up on his offer to talk about the tax he favors, which he calls the carbon tax, or what I prefer to call the tax on everything. I'd like to start by asking a simple question. What product or service do you use that isn't dependent in some way on carbon? I'll pause for a moment to give you a chance to think about just how essential carbon is to your daily existence. You can't name one item, can you? Every product you buy is made or transported to where you purchased it with the help of carbon. Planes, trains, trucks, ships, farms and factories all run on carbon-based fuels. That's the reason that people who love taxes love the idea of a carbon-based tax. It's the only tax that is applied to everything. So just how would a tax that increases the price of everything help you and me? The answer is it won't.

If more revenue were the answer to balancing the budget, the record 3.654 trillion dollars the government is projecting to take from taxpayers in its latest budget should be enough to do the trick, right? Well it won't, because of the gargantuan 4.1 trillion in spending that is called for in the very same budget. Don't be fooled by the deficit card. Keep your eye on the spending and tax cards. Realize that lower, not higher tax rates produce bigger economies, greater prosperity and more, not less revenue.

Dave Cribbin,ChFC, is currently the president of Rolling Thunder Cigars. 

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