Tax cut shift
Someone, somewhere, sometime has to pay for government spending--whether through normal taxes or through the extraordinarily disruptive and inefficient "inflation tax." It's for this reason that the press lies every time it refers to George W. Bush's fiscal policies as "tax cuts" instead of as what they really are: "tax shifts"--tax shifts onto tomorrow's taxpayers.
This is the reason I've not been able to get enthused about Bush's tax cuts. Tax cuts without corresponding spending cuts -- and spending, in case you haven't noticed, has been heading the other direction -- just mean a future tax hike. But on who?
DeLong cites analysis from the Tax Policy Center that addresses that question:
We estimate not only who benefits directly from the tax cuts, but also who benefits and who loses once the financing of the tax cuts is considered. We consider two scenarios: one in which each household pays an equal dollar amount to finance the tax cuts and one where each household pays the same share of income. [Emphasis added.]
Then, as expected, they conclude that low- and middle-income taxpayers get the shaft while high-income taxpayers buy a second yacht and have their tailors start sewing new puppy suits.
But I think history suggests a third scenario: one in which households pay an increasing share of income as household income increases. In other words, with a progressive increase in the income tax. It has certainly happened before; I think it's reasonable to consider the possibility that it might happen again.
So, if you got a "windfall" from the last round of tax cuts, save it; don't spend it. The government may want it back later.
Posted by Chip on June 24, 2004 at 05:53 AMThere is no reason to think that rebalancing the federal books necessarily implies tax increases. Later spending cuts are possible policy options. Another factor is the possibility that some of the now uncovered cost of government operations will be paid for in new payroll and income taxes that come from increased economic activity and business investment generated by the tax cuts (remember dynamic scoring?) that is not captured properly in government models.
The idea that tax cuts now must imply tax increases later simply doesn't hold water. They might, but I wouldn't bet on it.
Posted by: TM Lutas at June 24, 2004 06:15 PM
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