One Bad and Eight Good Reasons to Cut Taxes

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Advocates of high taxes have denounced President Bush's preferred tax-cutargument--it will help the economy--as outmoded Keynesianism. They have apoint.

In his first address to Congress, Bush said, "To create economic growth andopportunity, we must put money back into the hands of the people who buygoods and create jobs."

That sounds like the old Keynesian idea made popular during FranklinRoosevelt's New Deal: Cut taxes and increase government spending to "primethe pump" during a recession; raise taxes and reduce spending to slow downan "overheated" economy. Keynesianism seemed to have been finally laid torest in the 1980s when President Ronald Reagan argued for a tax cut onsupply-side grounds, and even liberal economists now agree that suchfine-tuning has little effect on the economy.

But one weak argument doesn't mean we shouldn't cut taxes. Here are eightgood reasons for a cut in income tax rates:

1. In a free country, money belongs to the people who earn it. The mostfundamental reason to cut taxes is an understanding that wealth doesn't justhappen, it has to be produced. And those who produce it have a right to keepit. We may agree to give up a portion of the wealth we create in order topay for such public goods as national defense and a system of justice. Butwe don't give the government an unlimited claim on our money to use as itsees fit.

2. Private individuals and businesses use money more efficiently thangovernments do. People with their own money at risk spend or invest itcarefully. You don't find many $600 hammers or insolvent retirement programsin the private sector. Money will do more good for more people in privatehands than in government hands.

3. High taxes discourage work and investment. Taxes create a "wedge" betweenwhat the employer pays and what the employee receives, so some jobs don'tget created. High marginal tax rates also discourage people from workingovertime or from making new investments. It's true, as some critics say,that our current marginal rates of 39.6 percent (somewhat higher whencombined with other taxes) do not depress economic output as much as the 70percent rates that taxpayers faced in 1980. But most economists now agreethat a reduction in marginal tax rates will increase output to some degree.

4. Income taxes should be cut because the overall tax burden is quite highright now. As of the third quarter of 2000, federal revenues as a share ofthe gross domestic product hit a peacetime high of 20.8 percent. Prosperityhas made Americans more accepting of the rising tax burden, but the currenteconomic slowdown will make high taxes harder to bear.

5. If we don't cut taxes, Congress will spend the money. If one thing iscertain in Washington, it is that Congress will spend every dollar it canget its hands on. Every interest group wants something--a road, a dam, asocial program, more teachers, more policemen, more corporate welfare--andmembers of Congress want to be liked. The only way to "put the surplus in alockbox" is to let the taxpayers keep it.

6. Lower taxes are the only real check on the expanding size and scope ofthe federal government. If we want smaller government, our best strategy isto reduce the amount of money Congress has to play with.

7. Elected officials should keep their promises. As a candidate, Bushpromised to cut income taxes. As president, he should keep that promise.

8. For Bush and Republicans in Congress, this may be the most importantreason of all: Republicans win when they cut taxes. Tax cuts unite theRepublican base. The tax consumers in our society are well organized; thetaxpayers need to be organized, too, around a tax cut program. In 1980, 1984and 1988, Ronald Reagan and George Bush won three presidential elections bypromising to cut taxes and then cutting them. George Bush raised taxes andlost the next election. I wager this is a lesson not lost on George W. Bush.

There you have it: one bad reason to cut taxes, eight good ones. PresidentBush should drop his weak argument and focus on those that work.