tag:blogger.com,1999:blog-5256136730392159236.post3374284613822686087..comments2008-12-15T23:38:33.451-05:00R. Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5256136730392159236.post-64919827863125193972008-12-15T23:38:00.000-05:002008-12-15T23:38:00.000-05:00There is no universal consensus on the matter of tax cuts here at the Cato Institute, so the opinion I am about to express should not be taken as a reflection of the opinions you might find elsewhere in this building. My take, however, is that the tax code should not be used to encourage this or discourage that because I do not believe in having the government direct capital flows in the economy and favor some<BR/>investments relative to others. Tax cuts are simply an indirect way of doing this and are in one sense worse than more direct interventions because tax preferences are less visible to third parties. Tax preferences increase the cost of tax collection, decrease otherwise desirable economic activity, create dead-weight losses, and produce less economic efficiency as a consequence. <BR/><BR/>Nor do I buy the argument that tax cuts are always a good idea. Why is it a matter of libertarian faith that it's better to pay for government spending with a metaphorical credit card than with cash? The former must be paid for in cash eventually ... with interest. That is, it will cost society MORE to pay for government via debt than via taxes. All that changes is the time in which the taxes are collected. Deficits simply borrow tax receipts from the future ... which, in a sense, is the same as borrowing economic growth from the future. It is not obvious to me that a political system that forces people in some distant future to pay for my government services today is somehow more libertarian than one that forces recipients of government help to pay the bills to some extent for that help.<BR/><BR/>Moreover, to the extent that taxes are reflections of the marginal cost of government to the average voter, cutting taxes while increasing spending reduces the marginal cost of government. It's no wonder, then, that public appetite for government spending goes up whenever taxes are cut. Do you doubt, for instance, that the $700 billion bail-out of Wall Street or the likely $125 billion bail-out of Detroit would never get off the ground if those programs had to actually be paid for by taxpayers in the here-and-now?<BR/><BR/>The usual defense, however, is that tax cuts starve government of revenues and thus, eventually, will starve-out government spending. Unfortunately, there seems to be no functional limit on the federal credit card and, thus, no empirical evidence that tax cuts = less spending. In fact, in-house regression analyses that we've performed on the matter show no clear relationship between the two ... an observation that we shared with Milton Friedman before he passed away and a finding<BR/>that convinced him (in correspondence with us) that his "starve the beast" hypothesis was likely wrong.<BR/><BR/>Regardless, there are less economically disruptive ways of promoting renewable energy. Direct subsidy from the Treasury is preferable because it avoids the inefficiency associated with a distorted tax code. Cap and trade or a carbon tax would be even better. But do not confuse that with a support for either policy. I do not favor a carbon tax or cap and trade programs in the energy sector because I am convinced (for the time being anyway) that focused adaptation is a less costly and more effective means of dealing with climate change than emissions reductions; http://www.cato.org/pub_display.php?pub_id=9125.<BR/><BR/>Best,<BR/>Jerry Taylor, CatoJerry Taylor, Cato Institutenoreply@blogger.comtag:blogger.com,1999:blog-5256136730392159236.post-31652303256599127582008-12-15T23:19:00.000-05:002008-12-15T23:19:00.000-05:00Hell of a mess we've engineered ourselves into, and I think your insistence on thinking about fiscal policy and green policy as mutually reinforcing is highly original. In this time when conservatives are moaning about being in the wilderness, you couldn't be more on target -- "let's welcome a spell in the wilderness -- and save it and save capitalism too", there's your punch line. Keep it up. You have a very strong hand when you say this trend can lower taxes if properly done. The fear of course is that the Democrats are going to go in the opposite direction. <BR/><BR/>I find your question very interesting. Why can't conservatives get interested in major initiatives to attack problems as fundamental as growth and energy, so obviously linked as you say? Lower taxes: spur growth, increase freedom. But this is an idea that we keep having to re-learn. The American Revolution was a tax revolt, but how many people in the media, or anywhere else, think of it that way? So why should they get it when EU enacts a tax cut? But give it a little time. Sometimes policy ideas take a while to sink in. If this thing works and the EU policy wonks see that it is working, they probably will call attention to it.Roger Kaplannoreply@blogger.comtag:blogger.com,1999:blog-5256136730392159236.post-78792689670399594752008-12-14T04:14:00.000-05:002008-12-14T04:14:00.000-05:00May I suggest you simply ask Dr. Chu what he thinks of green tax cuts? I'd be interested to know.Jacob K.noreply@blogger.com