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A Taxing Distinction

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Here’s a letter to the Washington Post:

You report that Sen. Marco Rubio (R-FL) went “off message on the GOP tax cuts” by saying that “there’s no evidence whatsoever that the money’s been massively poured back into the American worker” (“Marco Rubio just went way off message on the GOP tax cuts [2],” April 30th). Sadly, both Sen. Rubio and your reporter mistakenly assume that the effects of tax cuts can be adequately assessed by existing-firms’ short-run responses to them.

The core economic case for cutting tax rates on corporate and personal incomes, and on capital gains, does not depend on whatever increased spending such tax cuts might immediately generate from existing businesses and from consumers. Rather, the case for tax cuts is that reducing tax rates promotes economic growth by encouraging more risk-taking, more investment, and more work-effort over time by increasing entrepreneurs’, investors’, and workers’ expected net returns to their productive activities. And because much of the new investments and other economic activities that are encouraged by cuts in tax rates take time to occur, the full effects of such tax cuts can be adequately assessed only over the course of a few years.

It’s disappointing that Sen. Rubio has joined the ranks of those who myopically judge the economic effects of tax cuts by how much spending, and for whom, these cuts immediately make possible, rather than by the long-run incentives that cuts in marginal tax rates create for more risk-taking, investment, and enterprise.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

……

Rubio judges tax cuts like a Keynesian rather than like an economist who understands basic microeconomics.

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