Malo periculosam, libertatem quam quietam servitutem.



July 2014

Moore Says Conservatives Losing Their Way on Taxes

Written by , Posted in Economics & the Economy, Taxes

Stephen Moore alleges that conservatives are losing their way on taxes:

A new economic plan is circulating called “Room to Grow,” and one of its premises seems to be that tax rates aren’t important for the middle class. One of its key proposals is to increase tax credits to families with children and even possibly raise tax rates on others to pay for it.

The idea here is that middle-class families with kids are facing a financial squeeze and need relief.

It’s well-meaning, but a classic misdiagnosis of the problem at hand. “This is anti–supply side policy,” fumes Larry Kudlow of CNBC. “It’s just awful growth policy.”

He’s right, and here’s why: Giving every family an extra tax break, as opposed to incentivizing businesses to invest and expand and workers to work, does nothing to grow the economy. This is pure redistribution to families with children. It is better to give a man a fish rather than to teach him to fish, in other words.

This completely misunderstands the source of the economic anxiety facing families today. For most middle-class families, the central problem is not that taxes are too high. It’s that before-tax wages and salaries are not rising — they’re even falling for many income groups — thanks to Obamanomics. On average, the median household has lost about $3,000 of purchasing power since the recession began in 2008. Half of Americans think we are still in recession. The middle class is getting squeezed because the recovery is so feeble and jobs are so scarce, not because of tax increases.

Moore is exactly right. I haven’t looked through all the other policy proposals in YG Network’s “Room to Grow” – though as John Tamny points out in another eloquent take-down of its shortcomings, David Brooks loves it so presumably I will not – but on the question of taxes and economic growth they have failed to diagnose the problem for the reasons Moore mentions. This malady in conservative tax thought can even be traced back to the Bush administration, where Keynesian assumptions were embraced in 2001 with “tax rebates” that failed just as thoroughly to “stimulate” the economy as Obama’s spending. There were, in a second attempt in 2003, better tax cuts under Bush that were more oriented toward supply-side growth, but the point is that conservatives sometimes buy into their own form of erroneous economic populism.

The point is not that taxes are not part of the problem – they certainly are – but rather that the problems caused by the tax code are its numerous disincentives for work, savings and investment. It is suppressing economic growth by punishing productive behavior. Those incentives need to be corrected, and that’s not done through gimmick handouts and a further narrowing of the tax base.