Let’s focus on tax policy as a driver of growth, not as an instrument of social policy

This letter to the editors at the WSJ, sent on 12/16/10 (in response to a D. Henninger editorial), criticizes the use of tax policy as an instrument to achieve political objectives and social engineering.

What are taxes for?   Mr. Henninger’s intended meaning is not altogether apparent, but my guess is that, by that question,  he probably means, What governmental functions and objectives should we be raising sufficient tax-revenue to pay for?  In laying out the possible answers, Henninger presents the folowing alternatives: (a) to achieve such balance between the private and public economies as will best allow the US to remain the world’s pre-eminent economic and military power  – i.e., the pre-Obama historical precedent; (b) to eschew the pursuit of such balance, and simply provide as generous a welfare state as our means (earned or borrowed) will allow – i.e., the apparent Obama agenda; or (c) to ignore the question of the uses to which we would apply our tax revenues once they are collected, and merely focus on the development of a tax code and a set of tax rates that are designed to enhance the growth of the American economy.  I think Mr. Henninger has needlessly confused his essential message, which probably is (or at least should be) that the success or failure of our tax laws as a revenue-enhancing mechanism has nothing at all to do with the uses to which our tax revenues are intended to be devoted.  To put it more simply (and more directly in line with the views of economists such as Robert Barro, Alan Reynolds, Arthur Laffer, etc.), it may be wise to cut our tax rates if we are convinced that, by doing so, we will stimulate growth in the ecconomy, which in turn will result in a net growth (not a diminution) in tax revenues, and, if that is correct, it really does not matter whether we intend to expend the additional tax revenues in  building our international power and standing or in enhancing our social services to our citizens.

Incidentally, I find it curious that Mr. Henninger failed to mention the possibility that, from President Obama’s perspective, one of the things that taxes are “for” is, to re-distribute income and wealth.  In other words, the president’s objective is not only to increase revenues in order to strengthen the country or to enhance the welfare state, but also (primarily?) to effect social change.  Given that the Obama social agenda seems to be at the heart of what is driving the president’s tax policies, that agenda, and its essential irrelevancy (if not its opposition) to America’s economic growth and its international power and stature, deserve to be identified and isolated.

[Posted on mecmoss.com 10 Feb 2012]

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