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Lowering Taxes Without Spending Cuts

My friend Ryan McMaken has an interesting article up today, “Tax Cuts Without Spending Cuts Won’t Reduce the Taxpayers’ Burden,” LewRockwell.com (Nov. 8, 2024).

I am not sure I agree, though.

In my view, it is always better to cut FedGov spending, even if taxes are not lowered. It is also always better to cut taxes, even if spending is not lowered. It is of course best to do both, and the more cuts the better, but they are independent goals.

Cutting deficits is only a side effect, an ancillary goal, of cutting spending and of cutting taxes. Cutting deficits or balancing the budget is not the main goal or even a real, independent goal; it is just the consequence of lowering gov spending and gov taxation.

This can be seen by imagining two scenarios, assuming we have federal government revenues of $5T and spending of $7T, for an annual deficit of $2T: (1) the FedGov proposes to cut spending by $2T, thus balancing the budget. (2) The fedgov proposes to cut spending by $2T and to cut taxes by $1T, leading to a annual budget deficit of $1T.

Which should the libertarian prefer? The latter, of course.

To see this more clearly imagine that the USFedGov currently spends $1T and has no taxes, does not print money, but simply issues T-bills (bonds), which are bought and purchased by American citizens, pension funds, foreign governments, and so on. Would we advocate stopping the practice of selling bonds to willing buyers, who fund FedGov spending, and instead implement an income tax? To ask is to answer.

I think it is wrong to say that all spending has to be paid for one way or the other, out of either current or future taxes (or inflation). Current taxes are certain because they are in the present but future taxes are in the future and thus uncertain. It is possible these future taxes will not happen, for example if the FedGov eventually defaults on its debt. In this case trillions of dollars of debt held in the form of US Treasuries will simply be defaulted on and the holders will simply never be paid. Good. They shouldn’t be. Better them than current taxpayers having top pay for current spending with current taxes. It is always immoral and wrong to tax people but it is not wrong to default on such debt.

The holders of US Treasures have bought debt that has to be serviced by taxing the labor of American tax-slaves (or by further deficit financing, e.g. inflation). If some slave plantation in Louisiana in 1855 sold bonds on the market to raise money, and promised to pay back the holders of the bonds based on future revenue from slave labor, we would not cry tears if slavery were abolished and the bondholders never got paid back. Same with holders of government debt securities.

Indeed, as Rothbard pointed out in Man, Economy and State with Power and Market:

Many “right-wing” opponents of public borrowing, on the other hand, have greatly exaggerated the dangers of the public debt and have raised persistent alarms about imminent “bankruptcy.” It is obvious that the government cannot become “insolvent” like private individuals—for it can always obtain money by coercion, while private citizens cannot. Further, the periodic agitation that the government “reduce the public debt” generally forgets that—short of outright repudiation—the debt can be reduced only by increasing, at least for a time, the tax and/or inflation in society. Social utility can therefore not be enhanced by debt-reduction, except by the method of repudiation—the one way that the public debt can be lowered without a concomitant increase in fiscal coercion. Repudiation would also have the further merit (from the standpoint of the free market) of casting a pall on all future government credit, so that the government could no longer so easily divert savings to government use. It is therefore one of the most curious and inconsistent features of the history of politico-economic thought that it is precisely the “right-wingers,” the presumed champions of the free market, who attack repudiation most strongly and who insist on as swift a payment of the public debt as possible.

In other words, current spending need not be always financed by current, or future, taxes. Repudiating the debt is always an option, and a good one. So, we should not be neutral as to how current spending is funded. It’s better to fund it by selling treasuries, instead of increasing current (or future) taxes, since at least with this method it’s possible that the bonds may never be paid back, if the state repudiates the debt, for example if it’s unable to collect enough future tax revenues to pay off those claims.

Instead of recognizing this and that it’s always better to cut government spending, and present government taxes, independently of each other, McMaken not only opposes tax cuts not tied to spending cuts but actually seems to favor increasing present taxes:

one could argue that if the GOP is to agree to huge spending increases, as it has done nonstop since 2020, it would be less dishonest to simply increase tax rates rather than seek political advantage by pushing the tax burden onto the public by the less obvious means of deficit spending.

Balancing the budget and eliminating deficits is not an independent goal, as noted above. Even less important is “honesty.” I don’t care about the Fed Government or the GOP “being less dishonest,” I want taxes lowered, period, regardless of what they do with spending.

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See also Say No To Tax Reform.

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