Matt Lewis

Do tax cuts = more spending?

As we debate the “fiscal cliff,” The Weekly Standards’s Andrew Ferguson looks to the late libertarian “pot-stirrer” William Niskanen for guidance. According to Fergusion, Niskanen’s counterintuitive discovery was this: “If we wanted a smaller government…we would have to raise taxes.”

For those raised on the “starve the beast” theory, this sounds absurd. But the theory holds that people only resent government spending when it costs them personally (in higher tax dollars.)

The public won’t demand spending cuts based on some philosophical distaste for budget deficits. No, the public won’t oppose spending until they can feel some pain.

Conservatives traditionally want lower taxes and lower spending — and have frequently gotten the former without the latter. But is it possible that taking half a loaf was worse than taking none at all?

In this instance, protecting the public from short-term tax hikes might have had unintended consequences in the long run. (As Rocky told Mick:[P]rotecting don’t help nothing. It only makes things worse. You wake up after a few years thinking you’re a winner, but you’re not. You’re really a loser.”)

Sometimes you have to hit rock bottom before you make changes. Sometimes, you don’t get sober until you wake up in a pool of your own vomit in some motel in Beaumont, Texas. But what if someone is there to bail you out? Could it be that by shielding the public from the excesses of liberalism, conservatives have actually made liberalism more palatable? Could it be that conservatives are acting as an … enabler?

Ironically, by pushing for tax cuts, while simultaneously allowing spending to increase, conservatives may have helped create a sort of moral hazard. That’s the theory, anyway.

Why is this important to discuss now? It’s certainly not an argument for tax hikes. Instead, it’s an argument for comprehensive tax reform.

As Ferguson notes, taxing the rich would do nothing to change public perception about spending. In order for the public to feel the consequences of spending (minus an economic collapse), everyone would have to share the burden.

If you buy that theory, then capping deductions or proposing a millionaire’s tax isn’t the solution — a flat tax is.