Sunday, September 16, 2012

NYT: Do Tax Cuts Lead to Economic Growth?

There is an article making the rounds from the New York Times titled "Do Tax Cuts Lead to Economic Growth?"

I present a few quotes with my responses (Note: I am pro tax cuts coupled with constant or higher spending.

"The main economic argument for tax cuts is simple enough. In the short term, they put money in people’s pockets. Longer term, people will presumably work harder if they keep more of the next dollar they earn. They will work more hours or expand their small business. This argument dominates the political debate."

The main argument for tax cuts in the present economic climate of de-leveraging is indeed simple: it gives people more money to pay down debt, thus meeting the increased demand for savings that is driving anemic growth in the first place. No need to talk about incentives. 

"all of Mr. Romney’s top-line goals — a revenue-neutral overhaul that does not increase the tax burden of the middle class — is not arithmetically possible. History is littered with vague calls for tax reform that went nowhere."

This is a worthy criticism in the sense that making the tax-cut revenue neutral defeats the whole purpose -- a good reason not to vote for Romney. 

"And all else equal, tax cuts increase the deficit, as Mr. Bush’s did, which creates other economic problems."

Discerning readers would like to hear what exactly these economic problems are. Bond vigilantes? Greece? Please be specific.

All in all, Leonhardt's editorial shows how muddled the tax cut debate is in that both sides resemble blind folded piñata contestants aimlessly swinging at air.

If you must, increase deficit spending (we all know how excited the Times will get for more "shovel ready projects"!) but for the love of God please suspend FICA taxes at least.

 The American consumer wants to save. The least painful way to achieve this is to stop extinguishing a percentile of his monthly earnings. 

Lydgate


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