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economics

When a tax cut isn’t a tax cut…

I’ve heard that Obama wants to use “tax cuts” in order to stimulate the economy. That’s sound enough, when people have more money they either spend it or save it. Either way is good for the economy. When the government has it, it tends to get wasted. In addition to that, it is not spent in the ideal way by the people that make the money. In other words, let’s say that person x really wants to take a trip to Hawaii, but since he has to pay income taxes, he can’t do it. This may not sound like a big deal, but if that money is not supporting Hawaian tourist services (i.e. something that people actually want) and is instead supporting, say, Lockheed Martin, that’s quite a distortion. That also goes for charity BTW…. Multiply that by 200 million or so and you can see how screwed up the distribution of money is…

So OK, tax cuts are a good thing, so what’s the big deal? Here’s the big deal, it is only a tax cut if you both cut the taxes people pay AND lower spending. You see, every dollar the government spends it gets through taxes. So any deficit the government runs is really just deferred taxes. It sounds as though Obama wants to cut taxes AND raise spending. That is, effectively, a tax INCREASE. Any additional deficit spending is an increase in taxes at some point. It will have to be paid back at some point. And yes, inflation isn’t technically a tax, but it might as well be, it has essentially the same effect…

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