Monday, 31 March 2008

If tax cuts on Tuesday are good, then more tax cuts on Wednesday are even better.

Have you ever considered that all the arguments for the three percentage point cut in the company tax rate that's happening on Tuesday also exist for a three percentage point cut in every tax, thereafter -- and in fact for every further three percentage point cut after this one.

To be more precise, if one tranche of tax cuts of three percentage points is good, then successive tranches of three-percentage-point tax cuts is even better. If a tax cut on Tuesday is good, then another tax cut every day thereafter must surely be balm for the bottom line.

If a tax cut of three percentage points in the company tax rate is "good for investment," then so too is every further three percentage point cut in tax rates.

If a tax credit for research and development is "good for investment in research and development," then so too is every further tax credit for research and development.

If a tax cut of any size is good for low-wage earners to help them deal with cost and living increases, then so too is another cut in tax rates of the same size.

If the tax cuts that take effect on Tuesday "help provide a buffer against the expected economic slowdown," then how much better buffer would be provided by another tranche of tax cuts on Wednesday.

You see, all the arguments for this small cut in taxes that comes into force on Tuesday will exist the day after -- in other words, if tax cuts on Tuesday are good, then further tax cuts on Wednesday ... and Thursday ... and Friday ... are even better.  Far from leaving opposition political parties 'no room to move' by introducing tax cuts in election year, Michael Cullen has offered any political party of principle the opportunity to go on, two, three or four steps even better -- if any such party existed.

What's wrong for example with successive three percentage point tax cuts sufficient to strangle government spending almost completely, and provide the spur to prosperity we so desperately need.

And no fear either with the sophism that "tax cuts cause inflation."  That's nonsense.  Tax cuts don't put extra cash in the economy the way the Reserve Bank or The Fed does when it prints money -- the money in your pocket from a tax cut is real money, your money, not the Reserve Bank's counterfeit capital -- what they do is change the entity that's spending your money.  Instead of the government choosing where to put it, you do.

It's no more inflationary for you to spend your own money than it is for government to be spending it -- in fact, everything would suggest it's less inflationary for you to keep your money than for government to take it and spend it on inflating the bureaucracy:  Individuals are more likely to save some of their money when more of it is left in their pocket, whereas governments are always better at spending binges; and companies allowed to keep more of their money are likely to plough it into reinvesting in their own prosperity -- and any extra spending is going to be on producer goods, not on the consumer goods on which the Reserve Bank bases its inflation figures.


  1. Well said Peter. This is an example of how thinking in principles helps us to understand a complex world.

    Of course many economists would argue that there is an optimal tax rate which allows the maximum amount of loot to be extracted from the taxpayers/victims, and that this tax rate is obviously non-zero. They do ignore the principle however that taxation is theft and that theft no matter who sanctions it or its amount is immoral and wrong. Quite a simple principle really.



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