Why massive tax cuts should be way off the table

October 1st, 2015 at 8:42 am

Over at the WaPo. There’s a lot more to say about this point about how we’re going to need more, not less tax revenue in the future, than I had space. A few points that ended up of the edit-room floor.

–Larry Summers has stressed, the relative prices of the things government buys–health care, education–are rising a lot faster than average:

Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing, and more than a hundredfold relative to the price of televisions. Similarly, the complexity, and hence the cost, of everything from scientific research to regulating banks rises faster than overall inflation. These shifts reflect long-running trends in globalization and technology. If government is to continue providing the same level of these services, government spending as a share of the economy has to rise . . .

–Interest rates have been really low for really long, and they’ll likely stay low. But they’ll surely rise/”normalize” a bit as the Fed tightens. This will demand more revenues to service the debt.

–I mentioned the environment in passing, but efforts to reverse global warming and dealing with its fallout create a huge and classic public goods challenge. No private firm would or could undertake such efforts. It will require significant revenue. Of course, the canonical solution is to raise such revenues through “internalizing the externality”–a tax on polluters.

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One comment in reply to "Why massive tax cuts should be way off the table"

  1. Robert Salzberg says:

    Great post JB, but you missed the essential why? R’s are pushing tax cuts like Jebs! that would cost an estimated $3.5 trillion which is about the amount that we need to spend on fixing our infrastructure.

    R’s are justifying their tax cuts by asserting that it will boost the economy. But don’t tax cuts in general and estate tax cuts in particular have the lowest GDP multiplier compared to the highest multiplier for things like increased SNAP benefits or expanding UE insurance or infrastructure?

    Shouldn’t the frame of the argument be what gets the most bang for the buck for our economy?

    Wouldn’t that be the true fiscal conservatives’ litmus test?