Why Worry About the Debt
By Scott D. Gillette
most recent dividend and capital gains cuts enacted by Congress and the Bush
Administration demonstrate a positive development within the past generation. In
the 1970s, tax cuts were considered dangerous and eccentric. Today, it is the
conventional wisdom that tax cuts actually stimulate economic growth without
inflation. This is huge progress.
this positive trend is dampened because too many people cling to the notion that
the enlarging deficits, exacerbated by the tax cuts, create too great a burden
on the national debt, and the nationís collective prospects.
the deficit does not matter. Neither does the debt. So forget about it.
I walk down the streets of midtown
All countries have debts. They have to maintain a modern economy. The big
question is this: can the countries pay them back? Thatís why the key
statistic is to measure the national debt as a percentage of the nationís
output (GNP) for any given year.
what about the record deficits weíre running now? Well, as a percentage of the
economy, they are not record deficits at all, but quite manageable. Second, when
one considers the enormous costs incurred by the recession, terrorism, two wars,
corporate scandals, the deficit is incredibly light.
I donít mean to minimize the loss of 2.5 million jobs of the past few years.
But that condition just proves how urgent tax cuts have become.
the most important point: the deficits we are running now can increase so long
as they are incurred to improve long-term economic prospects. Hereís an
example. Letís say the government enacts an educational program for children
and prisoners that costs $50 billion a year over several years. Letís then say
that the huge costs of putting a person into prison are replaced with tax
revenues because these same people are working, and this swing comes to $100
billion a year. In the case, the original deficit was well spent.
I donít know if that specific federal program would be wise or not. But tax
cuts that encourage business activity and investment, and the most recent cuts
are just that, represent a sure thing and a good investment. They will increase
economic activity, guaranteed, so the government will recoup the costs.
Republicans, the party of tax cuts, should push for more tax cuts, regardless of
whether the country has a large deficit or large surplus. Then let others worry
about the deficit.
Antle, a fellow writer and supply-side comrade, recently argued
otherwise: ďSupply-siders contributed to the undoing of their own policies
by failing to favor reductions in government spending commensurate with the
reductions in taxes they achieved.Ē But this means Republicans have to rob the
political interests of Peter in order to pay Paul.
the Contract with America? It proved that Republicans cannot be a majority party
if they want to reduce spending without offering the American electorate
anything in return. Iím not saying that cutting government is a bad thing. But
letís face it, itís not a winning political strategy, and it makes future
tax cuts less likely, because there wonít be a majority of Republicans to
enact future tax cuts.
admit Iíd like the GOP to be a one-trick pony. Cut prohibitive taxes and
marginal rates now, tomorrow, and forever. These tax cuts will depress revenues
to varying degrees in the short-term, but increase them in the long-term.
implementing those tax cuts, some may try to reduce government spending. That
would be fine. Or the government will keep spending money as quickly as ever.
Thatís O.K. too. Because deficit levels and the percentage at which federal
spending increases pale in comparison to how healthy the economy is. Iíd love
to have $600 billion deficits if it meant that the unemployment falls below 4%,
depressed areas around the country turn around, and tens of millions of
individuals find opportunity where once they did not exist.
So when Mr. Antle says, ďmost supply-siders were content to lower marginal rates and hope that the resulting economic growth would generate enough revenue to continue funding the welfare state,Ē heís right. It should stay that way, too. For the long-term interests of the country, I submit itís the best way to go.
Back to column