Dispelling liberal myths: Tax cuts have to be paid for

A popular liberal refrain is that tax cuts have to “be paid for”. Tax cuts for the rich are often construed as handouts for millionaires, and people who advocate for less taxes all around are treated as fiscal miscreants who want something for nothing. Tea partiers are routinely chided as not paying their fair share.

Stories like this one are meant to convey the idea that tax cuts are the same as the government writing a check. They are also meant to portray those in favor of tax cuts as economically ignorant about the ramifications of their actions.

Facing a huge budget deficit when he took office in January, Nassau County Executive Edward P. Mangano did not impose a hiring freeze. He did not stop borrowing to subsidize some of the richest school districts in the country. He did not eliminate the Police Department’s beloved mounted unit.

Instead, Mr. Mangano, a Republican who won one of the first upsets of the Tea Party era, did what he had promised: He cut taxes, adding $40 million to the county’s deficit, which has since reached nearly $350 million.

Now, with its bonds suddenly downgraded and a state oversight agency preparing to seize its checkbook and credit cards, Nassau is on the verge of a full-fledged fiscal crisis.

However stories like this one neglect to mention the fact that while executive orders do, in fact, lower taxes and thus reduce the pool of available money that government agencies can pull from. These government agencies, like the local school board, have flatly refused to revise their budgets based on the revised numbers. This is what the press is calling a “deficit”. It is not so much a unilateral problem that the city is continuing to spend like mad, it is. The problem is that even cutting off the taxpayer spigot, government officials want to pretend like their budgets determine reality rather than the other way around where reality (money coming in) determines the budget.

Again, this is like my wife and I setting an imaginary budget of $5,000, walking into a store and spending up to that amount, and then getting mad at my employer for not covering the debt I’ve incurred. What I would have in such a case would not be a deficit, but a receipt for a cartload of stupidity.

So liberals like the reporters in this case can call it a deficit all they want. But that doesn’t change the fact that what this really is is poor planning by those who want to ignore reality.

Another article on the same subject paints quite a different, and more full, story

According to a county spokesperson, if business or homeowners believe that the county has assessed their taxes incorrectly, they have the right to file a tax grievance, which is then reviewed by a special commission. Property taxes are reduced and refunds potentially issued if the grievance, known as a tax certiorari, is won.

We had a similar situation in Augusta, GA before I moved to Atlanta.1

Home values were plummeting but rather than lower the tax assessed value to match market value, the county wanted to keep them artificially high just because they had gotten used to the cash flow. In fact, they said that even if they reassessed the values to be lower, they would raise the millage rate so they ended up receiving the same amount of money in the end.

This is essentially government agencies acting like they are not subject to market forces like everyone else. That is, if the taxpayers are not making as much as they used to, if their homes are devalued, then they cannot pay as much as they used to and therefore the government will take in less money as a result. Sure, the government can ignore these market forces, but not for very long until reality catches up with them and they end up filing for bankruptcy.

The moral of the story is that a stupid fiscal plan for a family does not stop being stupid just because we scale it up to encompass multiple families.

  1. They have since then apparently come to their senses. []
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