Overspending Busted the Budget, Not Tax Cuts

United States President Barak Obama recently blamed “budget-busting tax cuts” for the deficit. He was referring to the tax cuts signed into law by his immediate predecessor, George W. Bush. However, tax cuts do not cost the government anything.

A tax cut does not require an expenditure from the treasury. Only expenditures “cost” the government money. Therefore, tax cuts are not the reason for the deficit. The implication that tax cuts costing anything reflects the liberal Statist view that money belongs to government, to decide how it sees feet to distribute it.

Moreover, tax cuts do not even necessarily reduce revenue to the government. Tax cuts generate economic growth by allowing people to keep more of their money, which gives them more incentive to earn more and to invest more. In fact, tax cuts have historically been responsible for increases in revenue.

Sometimes, however, government uses the increased revenue it receives because of tax cuts to go on a spending spree. As a result, tax cuts are often blamed for budget deficits, even though they increase revenue. An example is the tax cuts signed into law by President Ronald Reagan. His tax cuts were partly responsible for unleashing a then-record-long period of economic growth, which nearly doubled federal revenue, but the federal government continued its long habit of deficit spending. Reagan’s tax cuts, like Bush’s after him, were blamed for the deficits.

The Bush tax cuts represented a refund to the taxpayers because of the budget surplus of the late 1990s-2000. A surplus occurs when more money is taxed from the people than the government needs. Refunding the surplus is the right thing to do, both morally and economically, as a large budget surplus is not only an embarrassment for overtaxing the people, but represents the removal of wealth from the economy, to its detriment. Therefore, eliminating the surplus is not “busting the budget,” but balancing the budget.

The Bush tax cuts did not cause the debt that substantively increased, despite the prosperity they are partly responsible for triggering from 2002-2007/8. Indeed, the U.S. government received an increased amount of revenue during the Bush prosperity. It was too much spending caused the return of annual budget deficits. But, as in the past, the federal government spent much more than it received. Some of it was understandable, such as for the War on Terrorism, but some was not. Regardless, the tax cuts were not to blame for the deficits. The deficits were caused by overspending.

Both the federal budget and the U.S. economy would benefit from spending and tax cuts, but Obama is proposing the opposite policy of dramatically increased spending and increased taxes on upper income earners and small businesses, which would harm the economy. Conservatives should continue to point out the benefits of spending and tax cuts, as well as the harm of unrestrained spending and over taxation, in order to urge Obama and Congressional liberal Democrats to change their fiscal policies soon.