Telling the Truth on "Telling the Truth"

Having a job that includes several hours of reading news, blogs and articles everyday has many advantages. Information consumption affords increased knowledge in many areas, a more rounded worldview and exposure to new ideas. However, a byproduct of many of the aforementioned benefits is that bad ideas are often encountered, and consistently reencountered.

I had one such bad encounter today.

On his somewhat famous blog, Matthen Yglesias posted today on Jim Kolbe (R-AZ), a post that can be exploded to address the issues of deficits and taxes at large.

In said post, Yglesias pounds Kolbe for saying that it's "time to tell the truth" about deficits while he voted in favor of multiple tax cuts. The connection drawn is misleading. Now, I'm sure Yglesias and others know much more about Kolbe and his record than I; however, the example of Kolbe is not what is contentious, it's what is posited as contradictory and conflicting views, viz. tax breaks are antithetical to deficit reduction.

In fact, the opposite conclusion is correct: lower taxes foster economic growth for all AND reduce the deficit. As seen throughout U.S. history, periods of low taxes have correlated with periods of strong economic growth, which aids all levels of society.

In technical terms, the reduction in taxes is, in effect, a wage increase, which shifts the demand curve to the right. That means that people with more money will buy more products and services, and the people who make or do things will earn more money accordingly, across essentially all industries. It also frees up more money for investment, driving the economy on towards greater innovation.

This was seen explicitly in the JFK and Reagan administrations. Those periods saw economic growth, increased government revenue AND... wait for it... a reduction in the deficit!

This can also been seen rationally. Low tax rates encourage people to work and earn money, and the transaction costs of trying to dodge the government or get out of taxes some other way is reduced more and more the less and less the tax burden becomes. Granted, there is an optimal level of taxation, at which the risk of aversion offsets the need for tax collection to pay for basic government services, and vice versa. That optimal level has hovered around 20 percent over years of U.S. empirical data.

This evidence is a far cry from the scenario drafted by Yglesias, and its accuracy is supported by both theoretical and empirical evidence. To posture otherwise – that there is an inconsistency with wanting to reduce the deficit and lower the tax burden – is to contradict logic, theory and the evidence.

Lower taxes and reducing the deficit should be at the forefront of every politician's policy. The results are in, such policies promote economic growth and a better standard of living for all.

Let’s hope this is the only record I need to set straight in my perusing of the blogosphere today.