I saw a national survey recently that found most Americans favor tax cuts over government spending in the proposed U.S. economic recovery plan. But are the two really different? To me, it’s just another version of “pay me now or pay me later.”
I don’t think it matters all that much whether the government cuts taxes or increases spending. Both policies inject money into the economic system. And both polices reduce the money in the government’s coffers. George W. Bush cut taxes and left a deficit of more than a trillion dollars. Someone will have to pay back that money some day, and it will have to be through taxes, as that’s how the government gets its income.
The question the survey takers should be asking is what kind of tax cuts and what kind of spending would lead to a recovery from the current economic slump. Should the tax cuts go to corporations or individuals, the rich or the poor, capital gains or wages? Should the spending be on food stamps or subsidies, highways or public transit, school construction or research? I would say all of the above.
No one can predict the future, not even economists. So, as in any investment portfolio, the government’s best bet is to diversify. My personal prejudice is toward investment in research as I believe the only way America can dig itself out of this economic pit is by discovering some amazing “new thing.” What that will be I have no idea. It could be something to do with clean energy, or anti-magnetic force or non-invasive surgery… Or it could be something I have never dreamed of. And then again, the research could produce nothing of value. Or the education system could produce some bright individual who comes up with a winning idea. It’s a crap shoot. The prudent approach is for the politicians to hedge their bets – to diversify.
Whatever happens, of this I am sure: Unless Americans start producing more than they consume, nothing can stave off eventual economic ruin. Right now, most of the nation’s production has been shipped overseas to places where labor is cheap and regulations are lax. Whatever else the stimulus plan does, it must lay the foundation for production of something that other countries want to buy.