Why do we want to cut taxes again?
Barticles wrote an post titled How to Argue Against Ever Cutting Taxes Without Coming Right Out and Saying So. His key point:
If the vast majority of taxes are paid by those in the upper income brackets, then even a progressive slashing of tax rates — say, cutting taxes in half for the poorest Americans, and cutting taxes by 10 percent for the richest — still will produce a disproportionate benefit for those in the upper brackets, owing to the simple fact that…
Tax cuts are most beneficial to people who actually pay taxes.
He’s right, of course. A 10% tax cut gives $100,000 to the rich guy who pays $1,000,000 in taxes, $1,000 to the guy who pays $10,000 in taxes, and nothing to the guy who doesn’t earn enough to pay federal income tax.
Let’s take one step back and ask why we want to cut taxes in the first place. Afterall, when we’re so worried about the deficit, cutting taxes is counterintuitive. Let’s look at a few common answers.
Taxes are Evil. If you’re categorically against all taxes ever, then it makes a lot of sense to support a flat rate-reduction. Of course, any proposal that actually cuts taxes would be desireable. The same applies if you think that everything taxes pay for is evil and want to starve the government monster. I don’t think either Barticles or I fall into that category.
People are suffering and cutting taxes will provide much-needed relief. I find this argument more persuasive—so long as it’s applied to, say, the bottom for quartiles. Upper bracket cuts means a huge loss of revenue to provide financial help to people who really don’t need it. This is a good reason to support only lower-bracket tax cuts.
Cutting taxes will Stimulate the Economy. It will. But the numbers suggest that it will most help the economy at the lower bracket. The stimulative effect of increasing, say, Earned Income Tax Credit would, dollar-for-dollar, go much further than cutting taxes for millionaires. Demand is weak. Lower-bracket cuts will help more than upper bracket cuts.
The Government has Too Darned Much Money. If we were running a surplus, tax cuts would make a lot of sense. And if we’re just giving back money, why not give it back in a reasonably flat manner? Barticles argument will make a lot of sense … if we ever have a surplus again.
We have a massive deficit. To me, that suggests that we should consider tax increases rather than tax cuts. But there are decent arguments that some cuts could be fiscally responsible. Those arguments are a lot more persuasive for the lower tax brackets.
