Tax Cuts, Loopholes, and Government Size [Oh My, Conservatism]

ATR ^ | 2011-06-06 | Chris Edwards

[92nina]

...The government distorts the economy and reduces GDP through both its taxing and spending actions. One reason is that both taxes and spending cause individuals and businesses to change their behaviors and reallocate resources in suboptimal ways. The table has columns for tax and spending distortions. It also has a column for government debt because running deficits today may translate into higher levels of distortionary taxes tomorrow. The table includes two Starve-the-Beast scenarios. “With Starve-the-Beast” means that tax cuts will reduce government spending to some extent over time. A narrow tax base shot full of loopholes creates allocation distortions, but if starve-the-beast works that sort of tax base also limits the government’s size creating a counterbalancing benefit to GDP. In the short run, starve-the-beast may or may work. Bill Niskanen says that it does not, but I think the effectiveness of it changes over time as political culture changes. In the 1980s and 1990s, policymakers took corrective actions when deficits rose, but the revival of Keynesianism in recent years changed the political culture and, for a while, nullified the fear of deficits for many politicians. In the long run, it seems obvious that the inflow of tax revenues to the government is a hard check on spending because there are financial market limits to government borrowing...

Read more: http://www.atr.org/tax-cuts-loopholes-government-size-a6209#ixzz1OW8QokoA

[92nina]

Our friend from Chicago, Mr. Obama, believes that when there is a tax reduction, the government is spending, because all money belongs to the government, of course...Right?

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