02/13/2018

To Spend Or Not To Spend

Brandon J. Weichert, American Spectator

In your heart, you know Rand Paul was right.

With the recent budget vote, Washington has decided to spend an additional $300 billion over the next two years, on top of the $1 trillion that we’ve just tacked on to the national debt with the recent tax cuts. Congress also decided to put off dealing with the budget again until March 2019. Thanks to this decision, whatever economic gains we may experience since the passage of the tax cuts are at risk over the long-term. A debate is needed, if the country is to have a chance at sustainable, widespread economic growth. We must decide very soon on whether we seek to be the America of relatively low taxes, reasonable regulation, and fiscal responsibility, or if we want to be another Europe. I shudder at what the American peoples’ choice will be.

The GOP says that its ultimate goal is to get sustainable, high levels of economic growth over the long-term. Unfortunately, that means that there’s still more spending to be done. Republicans believe that tax cuts and regulatory reform will negate the need for spending reductions because the first two policies will ignite the economy, allowing for economic growth to outpace debt creation (and the larger growth would also mean the more money that companies and citizens paid to the government in taxes without an actual tax increase).

Republicans say this was precisely what happened during the Reagan boom. The GOP is correct. And, to be sure, if we want to create sustainable growth levels in the long-term, an infrastructure bill (that would anticipate future growth) coupled with greater investment into education (that would help to create the workforce of tomorrow) are both necessary.

However, unlike the Reagan boom, the country’s debt levels have never been this high. Further, for every penny we want to spend on things that would actually create sustainable economic growth (like tax cuts, infrastructure, and education), the bulk of that which America is deficit spending on are things that will in no way contribute to economic growth.

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In Search Of History

The Reagan Tax Cuts Worked

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

-- Daniel J. Mitchell,

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