Tuesday, June 9, 2015

Tax Cuts and Fiscal Crisis: A Feature, Not a Bug

I assume that this article was what has inspired a whole spate of blog posts on the subject.  My response to all this is the same as it was before.  Republicans and their tax breaks have an elaborate shell game of "heads I win, tails you lose" going.  Tax cuts are always good for one of two reasons:

  1. Supply side economics. Tax cuts will spur such growth that revenue will increase and on spending cuts will be necessary.
  2. Starve the beast. Tax cuts will choke off revenue, precipitate a fiscal crisis, and finally force spending cuts.
Now obviously, tax cuts cannot simultaneous increase and decrease revenue, avoid the need for spending cuts and force them.  But ultimately for Republicans either option is acceptable.  If tax cuts increase revenue and avoid the need for spending cuts, then you can avoid having to make hard decisions, with the same amount of services for less.  If tax cuts reduce revenue, then you have to cut spending, which is the real goal anyhow.

Starve the beast did not work on the federal level because the federal government has an essentially unlimited capacity to borrow and, if worst comes to worst (which it hasn't so far) can inflate its way out of debt.  But states and municipalities can't print their own money, so their borrowing capacity is limited and most are required by law to run balanced budgets.  And in a number of them, the beast is beginning to starve.  It is pointless being shocked or complaining.  This was the goal from the start.  Fiscal crises were always a feature, not a bug in this system.  

The real problem was that fiscal crises were supposed to take some time to materialize. They were supposed to happen when the authors of the tax cuts were safely out of office so someone else could take the blame.

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