Should Advocates of Smaller Government Lobby For Higher Taxes?
Saturday April 5, 2008
Justin Fox on a point made by Jeffrey Frankel:
Of course, since many still believe in Starve the Beast, Frankel and Fox have a point - if you simultaneously believe tax cuts will raise revenue AND you believe in Starve the Beast, the only sensible option is to raise taxes.
Harvard economist and blogging newbie Jeffrey Frankel makes an excellent point about Republican political rhetoric of the past quarter century. Most Republican presidential candidates say on the campaign trail thatThere is a faulty underlying assumption with premise (a) - specifically that the level of government spending is equal to the amount of revenue the government brings in. Which we know simply is not the case. Why should anyone take the Starve the Beast hypothesis, the hypothesis that the level of spending is tied to the level of government revenue, seriously?
(a) they favor smaller government
and
(b) cutting tax rates increases revenue.
Put these two together and the only possible conclusion, Frankel writes, is that:
"Republican presidents should raise tax rates in order to reduce tax revenue ... and thereby reduce government spending"
Of course, since many still believe in Starve the Beast, Frankel and Fox have a point - if you simultaneously believe tax cuts will raise revenue AND you believe in Starve the Beast, the only sensible option is to raise taxes.
Comments
I don’t see a contradiction between ’small government’ and high taxes. Or between ‘big government’ and low taxes.
You could have a government that has a high level of taxation in order to redistribute income, without any attempt to micromanage market outcomes.
Or you could have low levels of taxes, but those taxes could go towards the salaries of a small army of people whose job it is to distort markets.
“Most Republican presidential candidates say on the campaign trail that…cutting tax rates increases revenue.”
I’m not sure that statement is true. Anyone have some quotes one way or the other?
Mike, your reductio doesn’t work out…
The people you make fun of (I do too) care also about private outcomes. Higher taxes would shrink the private sector too…
At 100% tax rate you’d get no public and no private economy.
Higher tax rates starve the private sector and will eventually reduce tax revenue and then government will spend and borrow more in order to relieve society from the troubles created by unemployment, hunger, etc.
For examples of the correlation between tax rate cuts and increased tax revenue the classics are the tax cuts during Kennedy, Reagan and Clinton administrations.