Tag Archives: taxes

“Austerity”

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I do not think this means what some news writers think it means. In a Wall Street Journal article, the news writer used the term this way:

A budget deficit contributes…by injecting more demand into the economy via spending than it subtracts via taxes.
…
But deliberately shrinking the budget deficit, via fiscal austerity, or expanding it, via fiscal stimulus….

What he’s talking about here is reducing government spending as austerity. Government spending is one component of the overall spending that is the demand component of GDP; the other component of demand at the GDP level is consumption spending by us citizens. But reducing government spending, while reducing that overall component of demand, isn’t austerity. That reduction simply reduces the level of competition between government on the one hand and us citizens and our private enterprises on the other hand for the same goods and services. That reduction in the government’s side of that competition at the very least reduces upward pressure on the price we citizens and our businesses face for those same goods and services, even eliminates pricing pressure in some areas, and in some few areas, allows prices to fall.

That’s not austerity, that’s an early step in prosperity.

The news writer again misused the term:

Fiscal austerity does the job with much less collateral damage than tariffs. Inflation goes down instead of up. Trading partners don’t retaliate. There’s no special-interest lobbying or corrosive uncertainty over who gets hit with tariffs for how long.
Austerity’s main drawback is that it slows growth.

Reducing government spending isn’t the only path to private prosperity, and done by itself can be decidedly reductive of that. Taxes directly take money away from both us citizens and our private enterprises. Some taxation is necessary for our government to do the things we hire it to do—pay our national debt, see to a defense capability adequate to the threats we face, and satisfy our nation’s general welfare in the ways delineated in our Constitution. Leaving taxes alone—or raising them—whether in isolation or in order to fund spending unrelated to those three purposes takes money away from us and our businesses that we’re better situated to allocate to our actual needs and wants.

Those taxes are the source of austerity inflicted on us by government. Reducing those taxes to the more minimal level needed to satisfy those three Constitutional requirements reduces austerity far more directly than reducing spending: every dollar left in our and our businesses’ pocketbooks and not taken by government is a dollar we can allocate more efficiently than government is capable of doing.

Reducing government spending—the news writer’s definition of austerity—actually indirectly facilitates prosperity if not actually increases it, and reducing taxation—not addressed at all by the news writer—directly increases prosperity by reducing real austerity, the taking of money from private coffers and putting it in government coffers. Doing both in concert with each other—that’s the far opposite of austerity.

“Another Reason to Move to Florida”

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The Wall Street Journal phrased its headline as a question, but it fits as a statement, also. James Freeman’s op-ed was centered on Republican Governor Ron DeSantis’ move toward reducing/eliminating Florida’s property tax, but there’s a much broader item in play here.

Florida’s regular legislative session starts next week and state Senator Jonathan Martin (R, Fort Myers) recently filed a bill to study “a framework to eliminate property taxes…and to replace property tax revenues through budget reductions, sales-based consumption taxes, and locally determined consumption taxes authorized by the Legislature.

Consumption taxes are even more regressive than our existing national income tax structure is progressive. Replacing reduced taxes with budget reductions, though—that would be a strong move toward leaving Florida’s citizens’ money in the hands of those citizens.

If Florida can pull that off, it would be a strong reason to move there, and it would be a powerful empirically demonstrated example of how such a move would increase the prosperity of the citizens of the other 49 States, and of the United States.

A Governor’s Disingenuousness

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Maryland’s Progressive-Democrat Governor Wes Moore showed all of that in his Monday letter in The Wall Street Journal‘s Letters section.

For the third year in a row, we won’t raise the sales or property tax.

Didn’t raise sales or property taxes? For three whole years? Whoopty-do. While that’s an unusual achievement for a Progressive-Democrat, keeping taxes unraised, if not lowered, should be the norm, not a braggable unusual act.

[I]t’s true that under our new plan, those who have done exceptionally well financially will pay a quarter point more….

Once again, a Progressive-Democrat refuses to say what the fair share is for the rich, other than by empirical action: more, always more.

SALT Tax

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Short, brief, sweet, and redundant.

One thing threatening serious tax reform—which is to say making permanent the tax rate reductions that otherwise expire near the end of this year, reducing those rates further, and flattening the rates further—is the kerfuffle over the SALT (State And Local Tax) tax deduction cap, currently at $10,000.

I sympathize with the Representatives and Senators, especially the Republican ones, in those States most impacted by the cap. Their wealthier constituents want the cap raised significantly if not eliminated. These politicians, though, must understand that as members of our national Congress, their responsibilities to our nation as a whole runs a very close second to their responsibilities to those individual constituencies.

The business of cap raising/eliminating is nonsense for a couple of reasons. One is that there is no reason at all for the rest of us taxpayers to subsidize those in States with profligate spending and already high taxes. Those Congressmen would do better using their Federal influence and bully pulpit to convince their State and local governments to mend their spendthrift ways and lower their tax rates—the latter which several States (tellingly, mostly Republican led) already have done or are doing.

The other reason is that, aside from empirical evidence that lowering tax rates actually increases revenues to the Federal government from the increased private economic activity that results from more money being left in the hands of us private citizens, revenue reductions—if any—from lowered tax rates is easily covered by reduced spending in general and reduced, if not eliminated, subsidies and tax credits for “green” energy solar and windmill farms, battery cars, federal deductions for non-federal tax collections, and other such tax engineering froo-froo.

Indeed, with sufficiently reduced spending, badly needed increased spending on national defense still could occur.

Raising the SALT tax cap wouldn’t be tax reform, it would be tax deform. In fact, reform here would be eliminating the SALT deduction altogether.

A Flat Tax

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Steve Forbes, Chairman and Editor-in-Chief of Forbes Media, and Stephen Moore, a Heritage Foundation economist, proposed last Monday.

Collapsing the personal-income and corporate tax rates to 15% would have huge economic benefits. America would suddenly have one of the lowest tax rates in the world, resulting in trillions of dollars of new capital flow and a spike in take-home pay.

And this:

The simplicity of a flat tax would reduce the deadweight costs associated with tax compliance—and the headaches. The White House Office of Information and Regulatory Affairs calculates that Americans spent almost eight billion hours filling out tax forms in 2024.

Using a naïve estimate of 97.2 million households (and even more naively assuming all households pay taxes, which provides an upper bound on the number of households relevant here), that works out to over 80 hours per household—two working weeks—of tax compliance labor.

This, too:

The Tax Foundation estimates that this cost the economy $413 billion in lost productivity, and the Internal Revenue Service estimates that we spent $133 billion on out-of-pocket compliance costs.

That’s $4,250 per year in lost productivity for each household, with an added $1,370 per year per household of unreimbursed spending just to comply with current tax law. Most households could find other uses for those $5,620.

Still, I don’t think Forbes and Moore go far enough.

I’d add getting rid of the corporate income tax altogether. Business’ customers pay the bulk of those taxes, anyway, rather than the taxed business; for the taxed business, the tax is just another cost center to be covered proximately through product/service pricing and indirectly through reduced spending on innovation, expansion, hiring, and raises.

Forbes and Moore suggest getting rid of some deductions, but I’d go farther here, too. Get rid of all deductions, subsidies, and credits, too, and tax all income from all sources as ordinary income. Let businesses make their expansion and financing decisions based on purely business and market criteria instead of having to game the tax implications of borrowing or stock issuances. Individuals also would go back to making their spending and investing decisions based on what’s good for their individual/family situations instead of having to game a byzantine tax system in the course of their decisions.

And those optimal decisions would include how to use those $5,620.