Browsing the blog archives for June, 2017.

Just cut taxes?

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Having lost the House, the Senate, and the Presidency, most on the left simply want to obstruct government, slow things down, and keep from talking about big issues like the economy, tax reform, and health care. Six months into the Trump presidency, I’d stay they are doing a good job, and the corporate wing of the Republican party doesn’t seem too concerned about it. Twice I’ve heard their pundits argue that “with healthcare and all of the other issues on the table, reforming the tax code is just too complicated in the current environment, so Trump should just go for a simple tax cut.” To this I say absolutely not.

There’s no question middle and upper income Americans are overtaxed. An across-the-board cut would help, but the real problem is cronyism embedded deep in the tax code. Corporate leaders benefit from the complexity of the code, moving their money around to minimize their tax obligations. Individuals do the same thing. There’s nothing wrong with playing by the rules of the game, but it’s time to change the rules.

In a word, this means simplification. It’s neither moral nor productive to create artificially high tax rates, and then offer “deductions” or “tax credits” to businesses or individuals willing to spend as Washington directs. These tax incentives encourage us to spend our money in ways we otherwise would not; if this were not true, then the incentives wouldn’t be necessary. For individuals, this includes putting solar panels on your roof, buying an electric car, or taking out a mortgage. Engaging in these activities lower our taxes nd pass the burden on to our neighbors.

But there are winners in the current system, manufacturers of solar panels, electric cars, home builders, and real estate agents to name a few. Industry groups seek refuge in the tax system and would be happy to see President Trump give up on tax reform in favor of “just cutting taxes.” The reform threatens the benefits they receive from the current system. Productivity is the key to real economic growth, and we are most productive when our decisions are guided by what we believe is in our best interest, not what government has prodded us to do. This is why tax cuts alone are not sufficient. We need real tax reform.

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SNAP cuts would hurt the economy?

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President Trump’s proposed budget seeks to rein in federal expenditures for the Supplemental Nutrition Assistance Program (SNAP). It’s fair for progressives to debate the merits of SNAP, but many on the left and their media surrogates argue that spending less on SNAP would hurt the broader economy. See, for example:

https://www.nytimes.com/aponline/2017/05/24/us/ap-us-food-stamps-cuts-economy.html

The argument goes something like this. If you cut SNAP, its recipients wouldn’t be able to spend as much on food, or they would have to spend money on food that might have been spent on something else. Either way, the ripple effect would hurt grocers and other retailers, and then farmers and manufacturers, resulting in a broad slowdown in the economy. They invoke an economic term, the multiplier effect, to legitimize their claim. But there is one major question they don’t ask.

Where does Washington get the funds to pay for SNAP? There are three options. First, if taxes are used, then any increase in economic activity promoted by SNAP is automatically balanced by a decrease in economic activity for taxpayers who have less to spend or invest. Second, if we borrow to pay for SNAP, then the economic activity it promotes will be balanced by a decline when future generations have to pay it back. Finally, if we “print money” to pay for it, then the purchasing power of the dollar declines proportionally, thereby creating an invisible tax on all wealth.

Economists like to say that there is no such thing as a free lunch, and that’s certainly the case here. There are different ways to break down SNAP expenditures, but they must come from a combination of these three options. There’s no other alternative. Claiming that SNAP—or any other social program—helps the economy by injecting money that gets “multiplied” is ignoring this reality. While it is true that SNAP changes could help or hurt certain industries, the net effect must balance.

So why do progressives make this claim whenever “cuts” are proposed to social programs? Some are pandering for votes, but others just don’t understand basic economics. They’ve been overloaded with Keynesian thinking for so long that they believe government spending is always required to “jumpstart” a weak economy. They overlook free enterprise, the stifling effect of regulations, harmful incentives created by government programs, and real people who have to pay the bills. This is why our national debt has risen to $20 trillion, with no end in sight.

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