It's amazing how these people keep repeating stuff that is blatantly wrong and nobody even questions it.
Larry Kudlow says reducing government spending from 24% of GDP to 19% of GDP would "be like a tax cut for the economy."
Kudlow has this completely backward. Spending cuts are the fiscal equivalent of tax increases. A cut of that magnitude (approx $750 bln) equals the REMOVAL of exactly that amount of income from the economy. When the governmment removes income it's usually called a tax. I'm sure Kudlow would call it a tax. And by the way, why isn't growth in Europe exploding now as a result of all the government spending cuts?
Just so you know, a spendig cut of that size would also equate to a 5% shrinkage in GDP, which would put growth at about -3.0%. Unemployment would skyrocket to about 15%. Some tax cut.
Kudlow says that spending cuts "remove the burden of taxes" from the economy? What taxes? Spending as a % of GDP is now the largest in post WWII history and taxes as a % of GDP are at the lowest level we've seen in that time. And how does he explain the fact that the economy has expanded since the deficit has increased?
Most amusing of all is the fact that Kudlow is bringing on Art Laffer to support his argument. Art Laffer??? Wasn't he the Reagan Administration Supply Side guru? Under Reagan Government spending as a % of GDP surged. Some person to talk on behalf of spending cuts. Ha!
Kudlow is dead wrong on this.
13 comments:
Taxes, properly understood through the prism of MMT, could be lower than they are now without necessarily having to cut back on government spending.
The problem at present is that taxes are misunderstood and therefore used incorrectly.
Art Laffer may be right on certain things, but the current argument on taxes is completely wrongheaded from the start..
Don't forget Art Laffer advised Mosler on writing "the seven deadly frauds.."
*sorry, soft currency economics
I've noticed in the media the increased usage of "tax-payer money" whenever government spending is mentioned. There's been a concerted effort to drive home the belief that every dollar the government spends was taxed out of the wallets of citizens.
Broll,
That falsehood, which Mike coined years ago as "Taxpayer on the hook!", is public enemy #1.
That has got to go if we are to move forward...
Resp,
Back in the good ol' days of the radio show, right Matt?
"That falsehood, which Mike coined years ago as "Taxpayer on the hook!", is public enemy #1."
These memes are tested by media experts (Luntz in particular) and the ones that work best in influencing opinion go to the top of the list that they pass out to cronies at places like Fox. Then the echo chamber picks it up.
"Small government, low taxes, strong military, and traditional values" is a very finely honed message. The message then gets developed from there. They don't stray from message.
Right Mike....
It was a good line then as well as now....
Also, "The Prospector" was one of the funniest characters ever on radio...(I'm not kidding!)
"They're printin' money!, they're debasin' the currency!" LOL!
Resp,
"Larry Kudlow says reducing government spending from 24% of GDP to 19% of GDP would "be like a tax cut for the economy."
Do you know what would be like a tax cut for the economy? A tax cut.
The real problem for conservatives is the GOP let Obama box them in with the payroll tax holiday.
The obvious Republican solution for a slow economy is, and always has been, a tax cut but they just spent months fighting Obama's plan for... a tax cut! The GOP is left with advocating spending cuts because once you rule out higher spending, higher taxes AND lower taxes, what else is left?
True enough Beo, but when you battle tooth and nail against deficits and debt, you put yourself in this box. Remember the debt struggles last year? I know you do.
Kudlow entertains two errors and those errors are where others need to correct him if ever on a show with him or writing about him.
1) Economic/monetary errors: He thinks the US government is revenue constrained. So he thinks its spending is taking from the private sector. That is his chief error but then he expands on that error by thinking that the private sector will more efficiently spend the money being taken from it (this might or might not be true) while he completely ignores the reality of the private sector's current desire to save/reduce its debt.
2) Then he perverts these errors even further by thinking that consumers and businesses will adjust their demands downward because of threat of higher future taxes. How he can think consumers (many of whom wait until the last week or day before current tax filling is due to even think about taxes) and businesses (which are driven by the top line for the most part and taxes are an after affect of revenue and operations - i.e. it's the revenue stupid) are heavily influenced by threat of higher future taxes, is beyond me.
Kudlow has this completely backward. Spending cuts are the fiscal equivalent of tax increases. A cut of that magnitude (approx $750 bln) equals the REMOVAL of exactly that amount of income from the economy. When the governmment removes income it's usually called a tax. I'm sure Kudlow would call it a tax. And by the way, why isn't growth in Europe exploding now as a result of all the government spending cuts?
1. Not spending money on a person is not the same thing as taking earned money away from that person. Spending cuts are not tax increases. If I don't spend $5 on you, I am not taking $5 that you already have away from you.
2. Spending cuts that are matched dollar for dollar with borrowing/tax cuts would be a boon for the economy. In this case, it won't be the case that the government "removes" money from the economy. They will simply not take what's already there, which enables civilians to spend/invest the money themselves.
3. In 1946, government spending fell almost 2/3, and taxes were cut by a large margin as well. And yet, while Keynesians like Paul Samuelson were predicting another great depression, the economy boomed. It grew something on the other of 30% in real terms. The same thing can be had today. The government can cut spending, cut taxes, and money that was originally siphoned away on bureaucratic waste, can instead be used by the private sector to expand production and jobs.
Cheer up everyone: Trump normally sacks people about a month after appointing them.
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