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How to make the beast eat healthier, get thin, and look fabulous

April 14, 2011

Proponents of “starve the beast” tactics, namely cutting taxes in the hope that govt will get smaller, did not foresee that government would turn around and instead “borrow” whatever needed to meet the level of spending that are dictated by the politics du jour. The question is “why would lenders be willing to lend money to Uncle Sam?” The answer, I’m afraid, is that lenders can feel safe in knowing that the US govt can always raise more money down the road, for instance by raising taxes! So the borrowing is done against future tax increases, and any tax-cut done now makes the likelihood of a future tax-hike even more probable.

One way to prevent this dynamic from happening would be to freeze the current tax-structure into place for an extended period of time, say 6 years, or 10. It seems to me that this would reduce the amounts that could be borrowed because it gives much less flexibility to raise taxes in the future. It also prevents unfair targeted tax-cuts from distorting the market-place. Finally a more stable fiscal policy would reduce the uncertainty and be conducive to long-range planning.

Sure the govt has the power to tax us, but maybe it does not have the right to change its mind so frequently.

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From → Politics, Taxes

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