Tax Cuts: Not a Universal Panacea
Alex Cartwright ’13 & Dylan DelliSanti ’14
Conservatives almost always use “cutting taxes for the rich” as a policy-panacea for economic woes, big and small. For instance, in the article “How poor is ‘poor’” Robert Rector at National Review writes that, “What can be done to increase self-sufficiency and reduce official “poverty”? In the short term, the number of jobs should be increased by easing the threat of excessive taxes and greater regulation on employers and investors who create jobs." While there’s little doubt that cutting taxes will lead to growth over a long period, the potency of tax cuts should not be oversold. The almost universal policy suggestion of cutting taxes has been pushed as a solution to such a wide variety of issues that it should be no mystery why those on the left tend to believe that markets inherently favor the wealthy.
Rector, and right-wingers like him, aren’t making any progress with their well cited research when they cite tax cuts as an alternative to expanding welfare. Welfare and Tax-Cuts aren’t obvious substitutes, and actually aren’t very substitutable at all. There are much more direct ways to reduce poverty than either expanding welfare or cutting taxes: reducing occupational licensing requirements and the minimum wage, scaling back the War on Drugs, and allowing for more charter schools.
With some of the highest corporate taxes in the world, there is little doubt that tax cuts would encourage economic growth, but the effects are likely to be long-run; and moreover, they are not easily apparent. For instance, when low taxes encourage investment in new projects or raise corporate profits, the connection between the lower taxes and the better economic results might be difficult to perceive. Additionally, in an uncertain economic environment companies are more likely so sit on the extra cash they have as a result of tax cuts, instead of hiring more workers.
Instead, those who wish to seriously engage the dialogue against trying to end poverty by the ancient (and disastrous) method of transferring wealth, ought to advocate policies that are not only consistent with long-term economic growth, but also directly help people who are often neglected in the tax-cut dialogue, such as the poor or young people- exactly those who welfare aims to help. Doing this would help the ideas of economic freedom reach new ears.
One such policy might be to reduce occupational licensing. Occupational licensing, such as taxi cab medallion systems, licenses to braid hair, wax eye-brows, build coffins, decorate homes interiors, or to arrange flowers (no, this one is not a joke) are in effect taxes and regulations that directly affect the poor and are used by the established businesses to insulate themselves from competition and make it impossible for new entrepreneurs to enter the market.
Minimum wage laws increase the cost of employing young people, thus reducing companies demand for labor and leaving many without work. While the wages these, typically young, people miss out on are often meager, the real loss is in missing out on valuable work experience and skills that could teach young people to invest in themselves and in their future.
Efforts to scale back the War on Drugs could have a similar effect. Currently, the War on Drugs has made it profitable for young people to sell drugs rather than find normal work. After all, with low-income and high unemployment, the opportunity cost of not breaking the law (via criminal activities) becomes a lot higher. By decriminalizing drugs, we could remove the locus of drug distribution from the criminal world, thus preventing young people from involving themselves in organized crime.
Allowing for more charter schools is another way of directly improving the lives of those who are less well-off. Charter schools introduce an element of competition to public schooling. In doing so, it allows forces school administrations to take a vested interest in their child’s education. If one school does not satisfy their child’s needs, then they can take their children to a different school. Thus schools work to improve, and specialize to meet the needs of different students seeking different academic programing. Higher quality education tailored to one’s needs and interests makes expanding charter schools an appealing way to reduce poverty- at no additional public cost.
The combination of the difficulty to perceive the long run benefits of tax cuts combined with the little prudence many Conservative policy analysts employ regarding using such a policy, many on the left come to regard tax cuts as an exclusive benefit for the well-to-do. For instance, in 2010 Rachel Maddow showed how the Bush era tax cuts were larger for the rich and from there attempted to argue that tax cuts disproportionately favor the rich. Tax cuts that adversely help the well off encourage a flawed reasoning that assumes wealth is a fixed pie. Many people think that if some people get tax cuts, than they must be receiving them at the expense of others. Continuing to argue for tax-cuts as the ‘free-market’ solution to all policies aimed at stimulating the economy encourages ‘big-government’ advocates to view tax-cuts as something that only helps the rich; given that tax-breaks and welfare aren’t close substitutes, this position is warranted.
This is just a sampling of policy positions that advocates of markets should pursue other than the blanket position of “cutting taxes.” These policies have an effect that is much more visible than tax cuts, thus broadening the base of people who can be included in the market paradigm. Unfortunately, the supposed political advocates of markets, Republicans, don’t often cater to policies that effect the less well-off. The rich aren’t as interested in voting to de-regulate occupational licensing, legalize drugs, or improve education as they are in getting tax breaks. Nevertheless, there is much stronger case to be made for economic-freedom than just citing the benefits tax breaks have on the economy.