Trend Alert: The End of Tax Cut Era
With this stimulus bill--we witness the last hurrah for tax cuts.
It was a nice run while it lasted--for much of the past 30 years, and especially the last eight. The idea that we could pay less and get more was particularly effective in winning votes for tax cutter politicians. They said we could have lower taxes and still spend for all those programs we don't want to do without--defense, health care, social security, education, and infrastructure (well not nearly enough on infrastructure). And we could even fight two overseas wars and have tax cuts too. Tax cutters thought tax cuts would boost the economy, people would become more entrepreneurial and take more chances, and they'd make more, generating more tax revenues as a result. As it turned out, their calculations just didn't work out. And meanwhile, Americans certainly became more entrepreneurial and took more risk, if that means over-leveraging. We all accumulated more (houses, cars, stuff) by liberally borrowing. And the financial markets took more risk by larding up on debt at every turn. Of course, the biggest borrower of all turned out to be the government--the national debt doubled and tripled in recent years. Suddenly we're in recession, verging on depression
Now, tax cutter purists say if we just had curtailed more welfare, pork, food stamps, foreign aid, and all the other "government waste", we still could have tax cuts and fight wars. Well, the math doesn't work there either. Those programs amount to a drop in the bucket compared to entitlements and debt service. But hold on, the government pulls out the equivalent of an American Express Black Card and is ready to spend whatever it takes to reverse the recession and stem the financial crisis (brought on by everyone spending more, but paying less). Tax cutters don't like the spending part, but they still want more tax cuts. As a result, for one more year we will be spending more (a lot more) and paying less (in taxes), which means our debts become even larger.
Of course, the irony of this latest round of tax cuts is--just about everyone has less income and capital gains to tax while the national debt balloons--taxpayers will be forking over north of $500 billion in debt service to China and other T-bill holders this year.
Obviously, the madness--both on the spending and tax cutting side--must stop. It's not sustainable and never was. If the country wants strong defense, health care, an old age safety net, decent schools, and paved roads--we all will need to pay the government more. That means more taxes and user fees like road tolls and higher transit fares. The yawning national and consumer debt also means we will need to spend less: living in smaller homes, driving fewer cars per household, and wasting less energy.
The spend more and pay less days are over. We're entering a different time. Tax cuts RIP.