Is there such a thing as a bad tax cut? Well, yeah, particularly if it distorts the natural market. Referring to the American Jobs Creation Act of 2004,

How much will this all cost? The bill’s sponsors claim it will cost the Treasury nothing. For every tax dollar given away—around 140 billion of them, in all—another will be clawed back, they say. The bill does close some loopholes and tear down some tax shelters. Many of the giveaways are also supposed to be temporary. But tax cuts, even ones with expiration dates, rarely die—some enterprising politician usually finds a way to make them permanent. Assuming that happens this time, the bill will only add to America’s fiscal difficulties.

Those fiscal problems are making many economists uneasy. But not all are as fatalistic as Mr Buiter. Indeed, some still hope for fundamental tax reform in the United States. For them, the true burden of taxation is not the money it levies but the economic decisions it distorts: decisions to work, save and invest. They hold up the tax reform Ronald Reagan passed in 1986 as an example of how to broaden and streamline the tax code, removing its distortions and freeing it from special interests.

Now, I don't believe tax cuts "cost" anything. The money doesn't belong to the government, it belongs to us, so a tax cut isn't an expenditure. I think the whole first paragraph there is fluff, but I quoted it for context because I think the second paragraph is important. The distortions created by our tax structure are bad for our liberty and bad for our economy. (And that includes things like the child tax credit, the mortgage interest deduction, and the charitable donation deduction.) What we need is not just a cut in taxes, but a vast simplification of the tax structure, which is one major reason I'm in favor of either a flat tax or a national sales tax.



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