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Senator Kyl Favors Deficits for Rich, Not Poor
Senator Jon Kyl (R-AZ) let the cat out of the bag on Fox News Sunday. He came right out and said that he favored running deficits to help the wealthy but not to help those in need. Now, he did not say America should not help the poor, but rather when helping them, that aid must be fully funded. Aid to the richest, though, does not need such fiscal discipline, according to the senator. Now, the entire world knew that the GOP more or less believed in this kind of economic theory, but rarely has it been expressed so blatantly.
Here are Senator Kyl's exact words:
Surely Congress has the authority, and it would be right to -- if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs. You do need to offset the cost of increased spending, and that's what Republicans object to.
In other words, a stimulative tax cut will increase the deficit, but that is OK because, according to GOP economic theory, that will spur investment and, therefore, the economy will grow. A growing economy will result in more revenue at the lower tax rate -- a point to be debunked shortly. However, taking money and spending it by giving unemployed workers an extension on the unemployment insurance benefits is somehow different. Mr. Kyl says that must be offset.
The economic ignorance here should embarrass Mr. Kyl and his ilk. As far as the economy is concerned, a $10,000 tax cut that is not offset is identical to a $10,000 spending boost that is not offset. Excluding the effects of foreign trade:
GDP = Consumption + Investment + Government Spending,
or looked at from the other side of the books,
GDP = Personal Income + Profits + Taxes.
It does not matter where the $10,000 goes because of the commutative property of addition.
Now according to the GOP, the lower the tax rate is the better. If the government cuts taxes, the economy grows and in the end, government gets more money. The truth is, however, that there must be an optimum tax rate, that is a rate at which government revenues will decline whether they are raised (causing slower growth) or lowered (government getting a smaller slice of the economic pie). Yu Hsing, Professor at Southeastern Louisiana University, wrote a paper, "Estimating the Laffer Curve and Policy Implications," Journal of Socio-Economics. Volume 25, Issue 3, 1996, Pages 395-401. Professor Hsing calculated the optimal rate between 1959 and 1991 in a range of 32.67% and 35.21%. The Heritage Foundation puts the current US tax rate (for all levels of government) at 28.2%. It would appear that a 5% tax hike would shrink the deficit, whereas a cut of any kind will make it worse without making the economy any stronger.
In truth, Mr. Kyl's policy is merely an attempt to continue the transfer of US wealth from the working and middle classes to the investor class, a project 30 years old. To his credit, he has admitted it.
© Copyright 2010 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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