Monday, October 2, 2017

Tyler Cowen On What You Should Be Asking Yourself About Trump's Tax Reform

Tyler Cowen writes for Bloomberg:
For all the analyses of President Donald Trump’s tax plan, one big factor is missing for a final assessment. Once we’ve lost some revenue, which taxes will need to rise in the future? In other words, the plan is really a (less glorious) tax shift rather than a tax cut....

It’s easy enough to pick on unpopular taxes as the problem, but the main issue is
cultural presuppositions about what government should and should not do. That’s where any real tax reform would need to come from.

The bottom line is this: Anytime you hear a news report on the Trump “tax cut,” substitute the phrase “tax shift.” Then ask yourself how excited you should be.
This is solid analysis as far as it goes from Tyler. He then recognizes that the difference between tax cuts without revenue cuts will result in a greater deficit and then puts the tax shift problem developing 10 years:
 Now let’s fast forward 10 years or so, when the U.S. is an older nation, and the fiscal burden of Medicare and Medicaid and Social Security will be greater. Most likely, today’s tax cuts, if they happen, will have to be paid for with tax increases.
This is true, if there is no default. But there is another problem with the increase in the deficit that occurs in the here and now.

Deficit financing, in one fashion or another, as I have pointed out before, will result in a crowding out of private sector borrowing. Thus shifting savings now into the inefficient, crony, bureaucratic sector and away from the competitive highly productive private sector. For more on this see: Why the Exploding US Government Deficit is Going to be a Very Real Immediate Problem.



  1. Brings up a question, though.

    Suppose you have a chance to lower taxes, but you know that you have no chance to reduce spending. Should you go ahead and lower taxes anyway?

    I'm thinking you should. At least deficit spending is voluntary in the sense that creditors have to willingly lend government the money. True, taxpayers have historically been on the hook to service/repay that debt, but there's always the possibility of default, where those who voluntarily bankrolled the state are left holding the bag.

  2. So how would you rank them, best (for liberty) to worst?

    1. Tax cuts + corresponding revenue cuts
    2. Same tax level + revenue cuts
    3. Deficit financed tax cuts + default
    4. Deficit financed tax cuts + tax increases in the future