Tax Cuts: Not a Universal
Panacea
Alex Cartwright ’13 &
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.
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