Thursday, September 23, 2004

Bush's Tax Increases

Brad DeLong nails it:
"You see, George W. Bush *talks* about the importance of balanced budgets but does not *act*. Bush appears to know that he needs to talk about the importance of a balanced budget. But Bush appears not to know that it is important to balance the budget. Bush shows no sign of knowing that a reduction in current taxes coupled with a spending increase is not a tax cut, but is instead a tax shift and a tax *increase*--an increase in average taxes over the long run coupled with a shift in taxes from the present to the future.

Bush appears not to know that the overall tax increase bigger spending has set in motion will have bad supply-side effects on growth. He does not appear to know that the tax shift will have further (and in all likelihood much larger) destructive effects on growth: the borrowing to bridge the gap between the present taxes not collected and the future taxes collected would crowd-out capital formation and reduce productivity; the fact that the higher future taxes that will be levied one way or another (through the inflation tax, if all else fails) are uncertain makes investment for the future much more risky, and further diminishes investment and productivity."
This something that the Democrats need to pick up on. When spending exceeds revenue, taxes are going up eventually. Don't let them fool people into thinking otherwise. And there is even a sharper point to this. Who benefits from the money in this "stealth" tax increase? It hasn't been the little guys.

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