Tuesday, July 26, 2011

Starving the Leviathan

The more ideological wing of the American Republican party is convinced that the growth of the state is a threat to their liberty and their way of life. Their chosen tactic in combating this nemesis is tax cuts. By withholding the necessary founds they intend to keep the size of the state in check. This plan sounds pretty reasonable and everyone hates to pay their taxes, so it should have a wide appeal beyond the ideological hard core.

The plan however seems to ignore the fact that the American government can borrow money freely and doesn't have to pay for its spending with the taxes it collects, it has been borrowing to pay for its lavish ways for years. Sure there will come a point where borrowing is no longer a possibility, but that far off in the future. Investors feel no anxiety over lending money to America as evident by the very low interest it is required to pay on its bonds. So any tax cuts are more likely to feed the deficit then starve the state.

If it is their wish to shrink the state this is better done in a more direct way by cutting spending, even if this sound much less pleasant then lower taxes in the ears of the electorate. This could even be done in combination with higher taxes. As long as the taxes go to paying off the deficit and not pay for new government spending.

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