Daily Archives: September 4, 2011

Taxes, spending, and context

A response I’ve seen more than a few times in discussions on economics is “All I hear is taxes are good, spending is good.” I don’t doubt that the person saying it truly hears that, but it’s very rarely what is being said. Generally, the liberal position is that more taxes or more spending are appropriate under certain circumstances. I think those last three words are the key to the misunderstanding. I could be wrong, and please correct me if I am, but it seems that that sentiment, the idea that how the government handles money should be tailored to the situation, is rarely considered by the right. So the conservative view is, in general, that lower taxes, less government spending, and less restrictive laws are always good things, that X or Y is the right thing to do or the wrong thing to do and there’s very little that can happen in terms of economic climate or political situation that changes that.

The view on the left tends to be more about context. Higher taxes and more spending can be good or bad things, depending on the circumstances. The calls for higher taxes are a part of the solution to the high deficit, and they are made more necessary by our current historically low tax rates and tax income. Likewise, very few on the left view more government spending as a universal good, but see it as a solution to a specific problem. Right now, that problem is high unemployment due to a lack of economic demand. In our current, very unusual, situation the two don’t contradict each other, because the tax increases being asked for fall mostly on corporations and individuals who are not using their capitol. Since the limiting factor in our economy is currently demand, the two can both be implemented without interfering with each other.

I’m sure some people will counter that Democrats always want more spending, why else have deficits been going up for the last decade? The answer should be fairly obvious, the last time we had a Democratic administration with a good economy, we didn’t have a deficit. Regardless of what you think of him as a president, Clinton balanced the budget and started paying down the deficit. It was the Bush administration that claimed “deficits don’t matter” and intentionally removed the surplus. While Democrats were supportive enough to allow them to pass, the general response from the left was, particularly from economists, was to oppose the policies that removed the surplus.