Here’s a pop quiz. If we raised taxes it would:
- Increase private sector economic activity.
- Decrease private sector economic activity.
- Have little or no effect on private sector economic activity.
- It depends.
Although I actually think the correct answer is D, all other things being equal I think that increasing taxes will decrease private sector activity and I honestly can’t see how anyone could believe otherwise. Note that we’re not talking about increasing public sector spending here. We’re just talking about increasing taxes without increasing public sector spending.
Now let’s turn to Robert Samuelson’s latest column:
We Americans are having the wrong debate. Almost all the arguing over the Trump administration’s proposed tax cut centers on two issues: Will the tax reduction stimulate faster economic growth? And is the proposal too generous toward the wealthy and too stingy toward the middle class and poor?
Interesting questions, to be sure — but mostly irrelevant to the nation’s long-term well-being.
The truth is that we can’t afford any tax reduction. We need higher, not lower, taxes. What we should be debating is the nature of new taxes (my choice: a carbon tax), how quickly (or slowly) they should be introduced and how much prudent spending cuts could shrink the magnitude of tax increases.
Mr. Samuelson never explains why he wants lower private sector growth but apparently he does.
IMO at our present rate of economic growth we can run a deficit of 2% of GDP indefinitely without inflicting harm on our economy. We’d be running at a deficit but the deficit would actually be decreasing as a percentage of GDP. U. S. GDP is around $18.5 trillion. 2% of that would be around $370 billion. The present deficit is around $440 billion or, in other words, we should trim spending by about $70 billion. It would seem to me that we could accomplish that just by doing things we should (or shouldn’t) be doing anyway. We shouldn’t be fighting wars of aggression. There are also changes we should make in Social Security and health care spending. $70 billion of cuts sound pretty reasonable to me.