Friday, July 19, 2013

Taxes Way Up… Spending Down, Slightly


Over at Reason, Nick Gillespie offers his usual common sense supported by statistics.
What Austerity Looks Like in 2013: Taxes Up 14%, Spending Down 4% - Hit & Run : Reason.com
As we've noted here before, there's good austerity and bad austerity. The good (read: effective at reducing debt-to-GDP ratios and not crashing an economy) focuses on cutting spending, liberalizing labor laws, reforming entitlements, and either keeping taxes flat or reducing their drag on economic activity. The bad (read: what has generally been tried in Europe over the past few years) involves raising taxes while increasing spending or barely trimming it. That one-two punch stretches out recovery by diverting money and decision-making out of the private sector where it's more likely to benefit more people. All austerity is not created equal and it's clear that austerity which relies on tax hikes more than spending cuts almost always comes a cropper. That's not to say that cutting spending will automatically boost economic growth (though it has at times), but there are real benefits to long-term economic growth to making the sort of structural reforms that form the core of successul austerity packages.
I have repeatedly argued that there is "good" and "bad" austerity, and there are "good" and "bad" forms of federal spending. If we spend to maintain roads, bridges, water systems, schools, etc., that's wise spending with some hope of a slight multiplier effect — plus these things support economic activity, even without a multiplier. Spending on first responders is "good" (to a point, and with reasonable pensions) even without a direct multiplier, since safety and security improve business.

But, the government cuts the wrong things, spends on dumb things, and raises taxes to maintain this absurd balance.

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