About The Long Term Advantages of A Tax Cut

Milton Friedman, one of America's Nobel laureates in economics and a practical economist most of the business world pays a great deal of attention to, had a magnificent column in the Wall Street Journal the other day in which he supports the idea that Washington should cut taxes. But ... his reasoning is not the usual thing we hear nowadays, the idea that a tax cut will stimulate the economy immediately. Friedman believes the benefits of a tax cut are long-term, and important.

Let me quote him: "I believe that government is too large and intrusive, that we do not get our money's worth for the roughly 40% of our income that is spend by government - federal, state and local - supposedly on our behalf, or the additional 10% or so of income that residents or businesses spend in response to government mandates and regulations." Friedman then says this: "History suggests that Washington spends whatever it receives in taxes plus as much more as it can get away with."

As you know, the debate in Washington is ferocious right now as to whether to cut federal taxes or not. President Bush has not only proposed significant tax cuts, but also proposed that the tax cuts now on the books be made permanent. On the other side, the Democrats insist the government cannot "afford" to cut taxes ... that the government needs the money and if it doesn't get it, it might have to cut programs. Which, I believe, is exactly what Friedman is pointing out. In the final analysis, tax money comes from individuals like you and me, and the more the government spends the more comes out of your pocket and the larger the drag on the economy. As the good economist says: government is going to spend whatever it gets, and as much more as it can get away with.

Let me quote Friedman again: "Under those circumstances, how can we ever cut government down to size? I believe there is one and only one way: the way parents control spendthrift children, cutting their allowance."

This is Gordon Sawyer, and may the wind always be at your back.

http://accesswdun.com/article/2003/2/183248