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The Seen and Unseen of Tax Cuts

Here’s a letter to someone who learned of a recent essay of mine because her father-in-law, thanks to George Leef, discovered it through National Review.

Ms. C__:

You write, in response to this essay of mine, that I “and other conservative tax cut apologists do hocus pocus in picturing tax cuts as helping anyone except the rich.”

First, I’m not and never have been a conservative. I am and always have been a liberal (with no prefix).

Second, the fact that high-income earners can be said to gain when their taxes are cut is understood by everyone and denied by no one. But a corollary of this fact is frequently missed – namely, high-income earners enjoy what you call “disproportionately large gains” from today’s tax cuts only because high-income earners suffered disproportionately large losses from yesterday’s tax hikes. These “disproportionately large gains” for high-income earners, in other words, might fairly be described as the results of a discontinuation of a policy of inflicting on high-income earners disproportionately large losses.

If you stop punching me in the face, I suppose I can be said to “gain,” but you’ll forgive me if I describe the situation differently.

Third and most fundamentally – and contrary to your denial – the additional work effort and investments that are undertaken as a result of tax cuts do indeed benefit people other than the individuals whose tax liabilities are reduced. Workers’ productivity is increased, leading to higher real wages, while more consumer goods and services are produced, thus lowering prices and improving consumer well-being.

You can argue that the public’s gains on these fronts are exceeded by the losses it suffers as a consequence of the hit to the government’s treasury. And you might be correct in any particular case. But you can’t legitimately deny the reality of these gains any more than you can deny that, say, increased freedom of the press – while obviously benefiting the likes of newspaper owners, tv-news reporters, and basement bloggers – is beneficial mostly because it ensures a better flow of reliable information to the public.

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

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