Taxes vs. Spending

Government spending is analogous to putting charges on your credit card. Taxes are analogous to the check you send your credit card company at the end of the month.

Every dollar the government spends comes out of the private sector, whether the government raises that money with taxes or by borrowing to pay a deficit. Everyone understands that dollars raised by taxes come out of the private sector. But lots of people act as though money raised by borrowing doesn't also come out of the private sector. Every dollar the government borrows is a dollar that a company or individual could otherwise borrow. The more money the government has to borrow, the higher an interest rate it has to pay to get that money. The higher an interest rate it pays, the higher an interest rate businesses and consumers also need to pay (in order to compete for dollars that are being lent out).

When politicians talk about cutting taxes to keep money in the hands of citizens, they're being (intentionally and cunningly) stupid. The only way to keep money in the hands of citizens is to cut government spending. But it's easier to cut taxes than to cut spending, just like it's easier to send a smaller check to your credit card company than it is to charge less on the card in the first place.

June 2001

Patriotic Gas Tax: fighitng the war on terror through economic reform


Taxes in the News

October 2005

Estate Tax Gets a Stay of Execution
Republicans were just about to try to put $85 billion per year into the hands of the richest 2% of our population by repealing the estate tax. Then Katrina hit. The GOP became divided over whether to move ahead, with some worrying that their plan to enrich themselves, their families, and their friends would fare poorly in the altered political climate. Plans to abolish the estate tax are now delayed. The estate tax is the best tax we have, and that’s why the Republicans are out to kill it.