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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (359910)	11/27/2007 3:14:36 PM
From: TimF	Read Replies (1) \| Respond to of 1573096

Which is why it takes "the very long run", rather than just "the long run". Both borrowing and taxing remove money from the private sector and put downwards pressure on economic growth. So the removing money from the private sector factor is pretty much equivalent for both. But beyond the loss to the private sector of the money spent by the government you also have the dead weight loss caused by the distortions and perverse incentives of the way the revenue is raised, and by compliance costs, both of which are lower for borrowing, so within limits, unless your tax system is very simple and non-interventionist, you can get more economic growth from tax cuts even when you are running a deficit. Most of the benefit of the tax cuts is lost, but not all of it. OTOH that "within limits" is very important. If the deficits are too high, and the country has a fiscal crises, or even a widespread serious fear of one, than the deficits do a lot of harm. Also since you have to pay interest on debt, deficits now put upwards pressure on taxes later, unless you can reduce the growth of spending. If the deficits are increasing slower than the economy (as a percentage), and the debt is increasing slower than the economy (in dollar terms) than there may be no need to increase taxes later due to these deficits, but you will at least have less ability to cut taxes later. If the deficits and debt are increasing faster than the economy for a sustained period than you are building up a lot of pressure to increase taxes, and you might even be heading towards a fiscal crisis. One important consideration is how federal income relates to current and future federal spending. To the extent that reduced federal income leads to containment of federal spending then tax cuts are more beneficial. I think many Republicans have exaggerated this effect, but I do think it does have some impact, even if not as strong, and certainly not as immediate as some would argue.