Wesbury on Tax Cuts
By Arnold Kling
Brian Wesbury makes a supply-side case for tax cuts. One point he makes that I agree with is that when we think of the government “crowding out” the private sector, we should focus on spending rather than taxes:
Spending must be financed by either borrowing or taxation.
In other words, we can pay for government programs now, or pay for them later. In fact, if you invoke Ricardian equivalence, as Wesbury does, you are saying that the public believes that taxes will have to go up tomorrow to finance deficits that the government runs today. My instinct is that there would not be much long-term growth impact from a tax cut that you expect to be offset by a future tax increase.
I would argue that the “pay now or pay later” theory implies that the supply-side focus should be on spending cuts, because without spending cuts the government eventually has to raise more revenue. But my point of view tends to differ from typical supply-side analysis.
In fact, the case for tax cuts always seems to me to boil down to saying that with less revenue coming in, the government will spend less. Maybe that is true, but I find myself instead wanting to make the direct argument against government spending.
For Discussion. To me, supply-side economists often appear to make an argument that it is fine to cut taxes without cutting government spending. Is that a fair characterization of supply-side economics? Do you agree with it?