How Much Does a Tax Cut “Cost”?

Today’s N&O features this ridiculous oped article (originally published by the Washington Post) about how “we can’t afford” to extend the Bush-era tax cuts. The underlying premise of the argument that tax cuts “cost” something is absurd and offensive. It implies that all of the income we earn legally through voluntary agreements with employers is the property of the government, and whatever our rulers allow us to keep comes at a “cost” to the all-powerful collective.

Furthermore, the concept that perhaps government should curtail its runaway spending by even one dime is deemed too preposterous for the article’s author to even mention. The only presumption included is that government spending will, and should, continue at its current levels and rate of increase. 

But as Sheldon Richman wrote recently, its not tax cuts that cost money, its government programs that cost money:

“How will we pay for the tax cut?”

I laugh when I hear that question because it’s so obviously illogical. If the government were to cut taxes, say, by lowering rates or outright repeal, people would simply be free to hold on to money they otherwise would have sent to the IRS under threat of punishment. Allowing them to keep that money requires no expenditure. If the tax cut is dramatic enough, it might save money by permitting a shrinking of the government’s tax-collection machine. In the most basic sense, a tax cut costs nothing.

What people who ask that question really mean is: How will the revenue forgone be made up? Why do they care? Because they don’t want the government to have to cut spending.

Tax cuts don’t cost money; government programs do.

The real headline should read “Government spending we can’t afford.”  A more reasonable person would correct the N&O article as follows:

WASHINGTON — The tax spending debate about to unfold on Capitol Hill is breathtakingly irresponsible. Even as politicians of both parties purport to be concerned about the nation’s long-term fiscal situation, they are poised to worsen it to the tune of trillions of dollars by making the Bush tax cuts Obama spending increases permanent.