What Good Are Tax Cuts Without Spending Cuts?

Good news!! You’re about to save so much money on taxes thanks to this tax reform bill! Well, maybe that’s the case. Just check out all these pictures of numbers!unnamed In reality, most of the “cuts” in the senate bill are just accounting maneuvers to keep everything budget neutral. There are a couple important questions to ask about this bill.
  1. What does this do to actually reduce the percentage of income that goes to taxes?
  2. Where are these tax dollars going?
  3. Will the spending and budget reflect the lowered tax rate, or will it simply continue?

#1-What does this do to actually reduce the percentage of income that goes to taxes?

Well, according to the Tax Foundation, the new tax reform will be putting money back into the pockets of everyday Americans. Or in other words, “We will give back more of the money we steal throughout the year next April.” Obviously, cutting tax rates will require people to pay less in taxes. Cutting the corporate and small business rates would allow them to grow and attract foreign investment into business here which would boost the economy and create new jobs. These things are all good. One of the issues in this comes from the possible elimination of the state and local tax deduction. This article from the Hermitage Foundation explains how cutting these deductions disincentivizes local and state tax hikes, thus forcing the states to quit taxing at such high rates. This seems plausible as the Tax Foundation link above shows that states with higher taxes seem to have more tax savings. Americans would see lower taxes, but at what cost?

#2-Where are these tax dollars going?

Well, if the taxes aren’t being paid to states and localities anymore, but are being funneled to Washington D.C. instead, the money will be leaving the community to be redistributed as Congress sees fit. These deductions will pull money away from states and localities (who are supposed to be the first line of government, not the last) and putting into the coffers of the federal government. This is the problem with eliminating this deduction. It does save money, but at what cost? Instead of taxes going to the community in which you live, they are taken to Washington to be spent all over the world, rather than the road on which you drive to work everyday, avoiding potholes. This is a power-grab by Washington in which they reduce the autonomy of states and localities while expanding their reach and power. The federal government is overstepping yet again, and this must be confronted. There is plenty of good in this bill, but people must stand against this deduction and much more that will follow the passing of this bill as they begin to talk about future budgets.

#3- Will the spending and budget reflect the lowered tax rate, or will it simply continue?

So far, there has been no signs of spending cuts to accompany this bill. Maybe, there are plans to do so after this is passed, but in light of recent history, that seems unlikely. What will be done is that politicians will explain how the Laffer Curve will provide higher revenues over time to justify more spending. Now, the idea that tax revenues will increase due to economic growth and new investment is true. Repatriation of foreign profits, new businesses, job growth and labor force participation increases will all grow revenues for the federal government, despite lower rates. The question is, can they control themselves in Washington or will they continue to run deficits? This is an opportunity to cut programs and wean people off government dependency. As people become wealthier through the proper reform of taxes and subsequent economic growth, the government should cut spending on redistributive programs to mirror the success.

Last Words

Republicans have forgotten that they are the “conservative” party which means that they should be in favor of limiting the federal government, empowering individuals and localities and increasing the autonomy of the states. This is the principle of America, that the states are all experiments in governance that can learn from each other, and as one becomes freer and more prosperous, people can move their to enjoy the liberty and prosperity that abounds there. Instead, “conservatives” are pulling money and power away from states and individuals to the federal government. They are spending increasingly irresponsibly and show no signs of changing course. If people are to benefit from this reform, they must be empowered and incentivized to create and grow wealth as well as enjoy more liberty from the tyranny of the IRS. Republicans should look to decrease tax rates for all and simplify the code for all. This would allow people to be freer and wealthier. They would enjoy the fruits of their labor, and would see the benefits of hard work, sacrifice and patience. It would change the attitude of Americans. As people become wealthier, the government should step back. It should allow them to take care of themselves and reduce its role. Start by holding spending constant, then cutting it 1%, then 5%, then pay toward the debt with the savings. This is an opportunity to right this ship, and should not be squandered for $1100 back next April.

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