Wednesday, January 19, 2011

Bush Never Cut Taxes

Recently there was much discussion on the extension of the Bush tax cuts. Republicans and Democrats were both giving President Bush credit for cutting taxes when president, and Republicans were accusing the Democrats and President Obama of trying to raise taxes.

Leaving aside the fact that the tax cuts were actually the result of hundreds of congressmen in addition to President Bush and giving him credit, and leaving aside the debate over whether the expiration of the tax cuts constitute a tax increase there is still one big problem with the whole debate. Under President Bush taxes never went down. President Bush never cut taxes.

That is because as any Austrian economist can tell you, Total Taxes are always equal to Total Spending. It is true that some taxes were cut under President Bush, but that only means that other taxes went up even more.

What confuses the average person is that Total Taxes is the sum of Direct Taxes and Indirect Taxes. Deficit spending is therefore considered a tax. It can be paid by higher interest rates as the government crowds out other borrowers, or it can be paid by inflation as the government taxes away the wealth of those who hold cash. In both cases value is being transferred from the private sector to the public sector, and that is a tax.

Taxes shot up under President Bush, which is why the Tea Party Movement started in late 2007. The Tea Party movement has always had government spending as a major focus.

Now the debate is coming up as to whether or not the debt ceiling will be raised. A portion of the Republican takeover of the House of Representatives was based on Tea Party support. If the Republicans raise the debt ceiling, that will be an increase in taxes, which will be a repudiation of the support that got them elected.

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