Do Tax Cuts Pay For Themselves? It May Not Matter

There an ongoing debate if lower taxes pay for themselves, but even if the left is correct that tax cuts don’t 100% pay for themselves, it may not matter, especially given America’s reserve currency status.

Even though I tend to lean to the right on economic issues, admittedly the Laffer Curve may have been oversold – but low taxes are generally better than taxes that are too high, even if we cannot exactly quantify if or how much of the taxes pay for themselves. But considering that the stock market, which is a real-time barometer of economic health, tends to react positively to expansionary policy (lower taxes, QE, lower interest rates, TARP, etc) and negativity to contractionary policy, one can infer that tax cuts do help. With the national debt not being a concern, we should not squander the opportunity America’s reserve currency status affords us, and thus we should keep taxes low as a way of stimulating the economy at no cost, creating free growth. Spending $1 trillion to get $700 billion may seem like a bad deal, but not if that $1 trillion was borrowed for next to nothing and helps create the next Teslas, Facebooks, Apples, and Googles. The evidence suggests Reaganomics was a success, although one could also argue that the strong 80′s economic expansion would have happened anyway and that Reaganomics was only coincidental.

Attributable to American economic exceptionalism, the insatiable demand for US debt it allows the government to borrow more while keeping interest rates low, allowing for spending with impunity without the consequences of hyperinflation. Aside from the doom and gloom from zerohedge and other disreputable sources, global confidence in the US economy is high and this is bullish for treasuries. Taxes still at historic lows, despite rising debt, which illustrates this point. Taxes did go up slightly in 2013, not out of economic necessity, but to due politics. As we argued earlier, government spending could help the economy if it represents an optimal transfer of capital that otherwise wouldn’t have occurred on its own, with high ROI programs being TARP and the funding of high-IQ companies such as Tesla, for example. Monetary and fiscal policy should be about creating economic conditions conducive to growth and wealth creation.

Related:

Foreigners Keep Buying US Debt – And it Makes the Left Mad

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