Thursday, February 26, 2009

Good (spending cuts) = Bad (repeal of tax cuts)

I have seen this line (snipped out of a bloomberg story) reported elsewhere:

"Obama pledged that his administration will 'go through our books page by page, line by line' to cut wasteful or inefficient spending, and said officials have already found $2T in deficit reduction."

The $2T (presumably over a 10yr time horizon) includes the extra "revenues" coming from letting the Bush tax cuts expire for people making over $250K (worth more than $60B/yr I'm guessing). This is thoroughly dishonest. A tax hike is not equivalent to cutting spending. From an economist's point of view, taxes (particularly income taxes) are bad and government spending is bad. They might be necessary, but they are bad and should be minimized. Cutting government spending should never be in the same category as raising taxes. Good does not equal bad.

There is a larger point here that Republicans and Democrats alike completely don't understand. Democrats are always claiming that judicious government spending is good because it can help grow the economy and increase government revenues. Republicans are always claiming that tax cuts are good because it can help grow the economy and increase government revenues. Always in the analysis is this idea that higher government revenues are good.


The government is not some private business where the goal is to maximize revenues. The goal of government is to facilitate the maintenance of a high standard of living and growth in that standard of living of the residents of the country. That is the proper goal. If somebody wants to argue that increasing government revenues is an important step towards that goal, they can make that case, but it sure isn't obvious to me.

It is particularly crazy to analyze policies based on government net revenues when we have a fiat currency system in which the government can print an unlimited amount of money. The larger goal once again should be maintenance of a high standard of living. This might include a sub-goal of maintaining the value of the currency, so maybe the government should be careful about how much money it prints, but we have to stop thinking of the government as a private business.

No comments: