Cutting Taxes and the Deficit

June 1, 2010

Martin A. Sullivan writes in Tax Analysts (subs. required):

Though many have tried, nobody can defy the iron law of budget gravity. It states:

Deficits = Spending – Taxes

When Paul, Hayworth, Rubio, and Angle proclaim that they want to balance the budget and reduce taxes, they are implying gargantuan reductions in federal expenditures. As explained previously, just to achieve President Obama's goal of reducing the deficit to 3 percent of GDP will require spending cuts and tax increases inconceivable in today's political climate. In the tea party fantasy world, we are talking about spending cuts equal to at least 6 percent of GDP. That's about $900 billion in today's terms. To get there you would, for starters, have to take drastic measures like eliminating all Social Security benefits. Or how about zeroing out the defense budget?

…Tea party activists are right that it is time for ground-shaking change throughout our government….Taking a hard line on tax increases will no doubt help control the size of government. But it does not follow that it will help address the larger problem of controlling the federal deficit.

He speaks some truth. Without decreasing spending, cutting taxes is inimical to reducing the budget deficit. And while there is reason to fear both high taxes and large deficits, one can't coherently rail against both without giving spending the same treatment. Sure you might see anti-spending posters at tea party rallies, but it is unlikely that many of those protesters could stomach the drastic cuts it would take to actually balance the budget. And starving the beast doesn't work when the beast can print or borrow its own food. We saw during the Bush years that cutting taxes did nothing to stop a lot of spending for a couple of wars and the expansion of Medicare.

It is appropriate for the deficit to be included into one measure of the size of government. So wanting to cut taxes (or not raise them) without biting the bullet on war spending or education spending or entitlement spending doesn't shrink government—it ignores its true size. For those in favor of smaller government, maybe focusing on cutting spending instead of cutting taxes would better serve their cause.


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