The Trouble With Tax Cuts

President Bush has lauded the fact that unexpected tax revenue increases have reduced the projected size of the federal budget deficit "from approximately $412 billion to less than $300 billion." This comes with some big caveats, the most important of which are noted at MauledAgain:

[W]hen borrowing from the social security trust funds is taken into account, the deficit is on the order of $470 billion. By ignoring this borrowing, the Administration's deficit estimators shift the true excess of spending over revenue to the future years when that trust funds will need to be repaid. . . .

Members of the Administration are touting the revised deficit estimate, and its cause, as a sign that tax cuts are working as intended. Excuse me, but that makes no sense. Without the tax cuts there would be little or no budget deficit. So we're supposed to cheer because the mess isn't quite as bad as it appeared to be? I'd be impressed if the revision showed a budget surplus, because THAT would demonstrate the validity of the "cut taxes, double revenue" nonsense . . . .

[T]axes on wages are barely increasing, because wages are increasing only slightly. In other words, the tax revenue increases are consistent with the shift of income gains away from the middle class and toward the very top of the income and economic ladders.

In other words, tax cuts generate less revenue than any increase in economic activity they may create brings about.

And, keep in mind that it is really spending as matters. As another tax pundit noted, when you spend more money you are increasing taxes. Either you are taxing people now, or you are taxing them later.

This should apply even to economic activity. Every dollar freed up for the private sector through tax cuts has to be replaced by raiding the private supply of funds available for capital investment to finance the national debt with Treasury bonds and bills, right now.

President Bush could have continued the Clinton legacy of balanced budgets, with little pain, just by staying the course. Instead, he got his hands in the tax cut cookie jar. The fiscal health of the nation has paid dearly for this choice.