1. NO TAX CUT BUILDS A ROAD
BARNEY FRANK: —that cannot be accomplished by a tax cut. No tax cut builds a road. No tax cut puts a cop on the street. No tax cut educates a child in the way that it ought to be done. So this—only tax cuts, at a time when I think we have a deficiency in some areas that are important for the quality of our life, is a big disagreement. - http://www.youtube.com/wat
There are a few things to say about this.
First, nobody claims a tax cut builds a road.
Second, because something does not build a road or puts a cop on the street is not a reason to be opposed to it when we’re talking about what is good for the US economy. Computers and beer do not put a cop on the street, so what? Are we supposed to oppose them on that ground?
Third, there’s a sense in which it’s false anyway. There are private roads, cops, and schools. These things exist because people have money. It’s easy to imagine how a “tax cut” which results in people having more of their own money using that money to pay for services like security, or education.
2. TAX CUTS FOR THE RICH
Obviously there’s an ocean of fallacious claims and reasoning when it comes to economics and especially with any statement that ends with “for the rich” by economic totalitarians (liberals). I’d like to briefly address some common claims.
On Bill Maher, he shows a graph showing that the bush tax cuts resulted in the top 10% of US earners keeping a lot more in dollars than 90%
(video here - http://www.youtube.com/wat
The graph shows that out of all the people who benefited, the “rich” received the most in terms of dollars, and this is supposed to show that the tax cuts were unfair. There are a few things to say about this.
First, by definition the “rich” will save the most in dollars than the non-rich. 25% of a million is 250,000, and 25% of 100 is 25. So waving around a graph showing that people with more money save more money when their taxes are reduced does not prove anything. Imagine if all people making 1 million dollars a year paid 50% in taxes (Leaving them only $500k a year), and all people who make $10k a year pay 10% in taxes (leaving them 9k). Now let’s say they lower taxes on the “rich” by 1% point, and cut taxes completely on the poor, where they pay nothing.
The rich would save $90k, and the poor would save $1k. The rich’s taxes were lowered 1% point, and the poor now by nothing. Wow! The “rich” got 90x what the poor got! Man, I can’t wait to go home and make a graph in PowerPoint so I can wave it around to people talking about how unfair that is. The point is that what’s important is the percentage, not the savings in dollars.
Second, let’s say its true the rich benefited the most from the tax cuts. Let’s say its true that they were the only ones in the US who got any tax cut. So what? You don’t judge the fairness of a tax on who pays what compared to whom, but what a group is paying to what they were paying. The rich paying 99% in taxes would be evil, and unjust – If they were to have their taxes reduced, and their taxes alone this would be justified even though the other groups did not get a tax break. The reality is showing that fairness is something that should be judged on more than just “who got what compared to the poor”
3. POLICY X WILL CREATE JOBS
A common argument in favor of a certain policy or government program is that the program or policy will result in jobs, and jobs are good and mean economic stimulus. A recent gimmick is Obama’s claim that his giant spending plan (he calls it the stimulus package) will result in jobs from the ‘infrastructure’ spending, and therefore it is simulative.
First, the principle ‘if x results in a job, then x is good for the economy’ is false. Cancer, brain tumors, and mental retardation all result in millions of jobs in the medical field, and yet it’s obvious that cancer is not ‘good’ for the economy. This is known as the ‘broken window fallacy.’ The fallacy is the idea that if X results in a job, X is good for the economy would imply that we could help the economy by tossing bricks into windows, resulting in a high demand for window repair jobs and windows.
Second, even if we can agree that X is simulative, it still needs to be weighed against the costs. We can all agree that a machine that makes cars is an economically desirable machine, since it allows more cars to be made, but if the man selling the machine demands a billion dollars a day for its use, then the benefits may not outweigh the costs. This is where the idea of ‘government jobs’ and the inherent wasteful nature of government comes in. If a man tried to sell his machine at a billion a day in the free market, buyers would reject the offer since they are spending their own money. The result would be the man would sell nothing if he does not lower his price. In government, where people are spending other people’s money, the incentive to be careful & ‘look for a good deal’ is not as strong. In addition, if the people vote for a person who promises a program, if that man is voted in then his main incentive is to create the program regardless of costs. In ‘Economics in One Lesson’ by Henry Hazlitt he expands on this.
“A bridge is built, If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary than the things for which the taxpayers would have spent their money if it had not been taxed away from them, there can be no objection. But a bridge built primarily "to provide employment" is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. "Projects" have to he invented. Instead of thinking only where bridges must be built, the government spenders
begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries. Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence. This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridge workers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. They will have that much taken away from them which they would otherwise have spent on the things they needed most. Therefore for every public job created by the bridge project a private job has been destroyed somewhere else.”
