President George W Bush will probably be remembered as the 9/11 president. For good or bad, that will mark his moment in time, as well as the policy decisions that were made as a result of 9/11. What will largely be ignored, is the massive spending glut he created. He cut our taxes and increased spending. The economy flourished. That of course was the case until about 2007, and the rest is history. His biggest tax cuts are due to expire next year, and debate is waging on what to do about it.
I can see both sides have good arguments. On the one side you want to keep taxes low because any increase will no doubt hamper the economy’s growth in some way or another. On the other side you’ve got people that are concerned about the deficit in the future, and eventually spending 40% of income taxes just to pay DEBT. Martin Feldstein does a great job talking about all the issues on both sides of the table. He concludes that the tax cuts should be extended, for now.
I’m going to take the opposite side and say it’s time for the tax cuts to expire. It terrifies me to say this, as I’m traditionally very much a fiscal conservative. But here’s the problem, there is a time and a place for fiscal conservatism, and now is not that time.
I applaud Bush’s gesture to cut taxes and put more money in the hands of the people. The problem is spending was not cut in conjunction with the taxes. That would be true fiscal conservatism. If we extend the Bush tax cuts in the name of the economy, we’ll get too used to the cuts and protest again when it came time to let them expire. There is never a good time to cut taxes, so you just have to do it.
We have a massive government deficit and growing national debt. Fairly soon we’ll have more debt than we can manage. Interest rates will spike and the economy will come to a halt. So the risk is having a stagnant economy now, or a dead one later. I vote for potential stagnation now. I only say potential because the Bush tax cuts mostly favored the wealthy. While it’s true the wealthy have most of the money and pay more taxes, it’s also true that these tax cuts didn’t help the lower and middle classes nearly as much. An example of a Bush cut was reducing the tax on capital gains and dividends to 15%. The poor don’t have enough money to invest and the middle class have most of it tied up in tax deferred accounts anyway. I’m generalizing of course, but you get the point.
The problem with Feldstein is he’s old. He was a Reagan economist who supported cutting taxes without cutting spending. He’s so old there’s no way he’ll live to see the repercussions of such a large government debt, even though he knows what they are. I’d like to hear what a 30 year-old economist has to say.
Recession or not, recovery or not, we have to start increasing taxes and cutting our spending. We don’t have a choice. It has to happen soon and it should start with the Bush cuts.
Please don’t egg my house for being rational.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
