The Case Against Raising Taxes: Spending Drives Debt

In related news, the sky is blue.

Liberals believe that government spending creates prosperity. If this was true, the USSR should have been the most prosperous country in the world. The average soviet citizen lived in poverty. I used to work with a Russian imigrant and he told us stories of life in the USSR. It was a subsistance economy. Of course, if your were in the political elite you lived very well.

Hi Briggs,

The graph shows a quantitative relationship between spending and debt, not a causal one. What about tax revenues? Could I argue taxes drive spending and debt? Do you seem to present a very convincing case.

IMHO, the overriding problem we are facing is debt. (It overrides all political liberal/conservative issues.) We can either pay off the debt, default, or partly do both. If we pay off the debt we can either reduce spending, or raise revenues (taxes), or do both.

IMHO, we should avoid defaulting on our debt, we should reduce spending, and we should raise revenues. If our current elected officials won’t put aside other issues and do ALL of that until the debt crisis is over, then I think we need to start voting for those who will.

There is another argument. Basically the argument is that America is an unique, albeit temporary position, where we are able to borrow very cheaply in our own currency. This will not always be the case, but while we have the access to cheap credit we can pay back no matter what (the our own currency part), we should take it.

Cutting spending is an absolute no-brainer.

Raising taxes is up for debate. In an economy that can’t quite seem to shake itself from the last recession and is threatening a double dip, raising taxes may only hurt in the long run by disrupting growth and creating an even higher unemployment rate which, ironically, can end up lowering the amount of revenue you actually bring in.

I say lower corporate taxes with the stipulation that money saved by companies is used for growth and job creation. Growth = more workers = more revenue. Unfortunately, it may be a decade or two too late.

Let make the point right know, that as much as the politicians talk about cutting spending, there are no actual spending cuts proposed.

They are debating reductions in spending increases.

Doug M is correct. The three-sided “debate” currently going in DC is closer to a “Three Stooges” episode than a display of responsible governance. All that heat and media attention and fortunately no actual “hard decisions” were harmed during the presentation of this piece of fiction by our betters in both parties. Why in the world would they want to cut the federal outlay and possibly offend their “clients”?

How at least one more political party keeps from being formed next year is beyond me.

49er Seems to be on to something. What drivers exist to heighten the desire to buck the status quo? What players exist to fulfill those desires? Patience may be all we need…

To answer the question asked by W. M. Briggs:

One would have to assume that THIS time (cross my heart !, this is for real, etc, etc) the additional taxes will not be misused. There are several problems of fundamental nature.
First and foremost it is time to end those awful tax subsidies. All citizens should know that the state shows incredible amount of good will allowing them to keep some of the money that belongs to the state. There comes the time when the state can not subsidize its citizens any longer.
Second, since the data presented refer to the past, the answer to the question would require a hefty dose of induction. That approach is wrong because it implies that the past has a predictive quality and that the government will continue to spend in an exponential rate. It will not ! The past does not necessarily point to the future. In the past 2+2 was 4. Today……. it depends.

The graphs show debts in absolute constant dollars, that I think is misleading. They should show debt as a percentage of GDP. If I have 5,000 dollars of credit card debt this could be a major problem or no big deal at all – it depends on my income.

MiMo – do you know what your income will be tomorrow? How about the next day?

While you’re correct that the same value of debt can be an overwhleming burden to one entity and neglible to another, there’s still something to be said about debt values changing over time without mentioning GDP (or income). You’re simply increasing the fragility of the system. The debt will always be there – the income may not be.

Debt is rarely the real problem, deficits are. If you balance a budget, and commit to balance future deficits (making up a deficit in a following year budget), then the debt will shrink relative to GDP, year after year. There is no need to pay down debt, only its size to GDP matters, until it becomes negligeable in the future. That is exactly the strategy that Canada adopted in the 1990s: budget were balanced, and the debt to GDP shrank from one of the highest to one of the smallest of the OECD. Seen this way, raising tax has some logic (only some, since there is a lot of downside that comes with it). The goal is to balance the budget as quickly as possible, to get on the virtuous path of a debt reduction (vs GDP). Balance budgets can be obtained by two ways: raising taxes and cutting spending. Cutting spending is a better economic approach, but tough politically and socially. That`s why doing a bit of both is the best approach. The debate should center around that proper mix (proportion of more tax revenues to spending cuts). That is a more pragmatic approach.