Gene Epstein of Barron’s explains why he’s no fan of Republicans’ latest tax-cut proposals.
“The approval process for the biggest Tax Cut & Tax Reform package in the history of our country will soon begin,” President Donald Trump recently announced via Twitter. “Move fast Congress!”
Accordingly, Senate Republicans are planning a 10-year budget that would include $1.5 trillion worth of tax reductions, The Wall Street Journal reported last week.
At the same time, nothing has been said about spending cuts. On the contrary, the president’s Office of Management and Budget anticipates that, over the next five years, federal outlays in constant dollars will rise.
This inspires a question once posed by the late free-market economist Milton Friedman: “When is a tax cut not a tax cut?” His answer: when it is accompanied by a larger rise in government spending. “The real cost of government,” Friedman explained, “is measured by what government spends, not by the receipts labeled taxes. The goods and services it buys are not available for other use.”
Why are taxes only part of the real tax burden? “Suppose,” continued Friedman, “government spends $400 billion and raises $350 billion in funds labeled taxes. Who do you suppose pays for the $50 billion difference? The tooth fairy? Hardly. You do.”
Friedman wrote these words in 1977. Forty years later, Senate Republicans still seem to believe in tooth-fairy economics.
