Taxes and the Young Person

Today, across the blogosphere, Democrats are talking taxes. I know that all of you have already filed your taxes. Or at least I hope so. 

But here, we're going to talk about the myth of the Republican tax cuts. Republicans love to talk about how Democrats want to increase taxes and how they supposedly cut taxes. But there's as many holes in their logic as their are in the corporate tax code. I just want to take this opportunity to debunk a few of the myths as they apply to young voters.

Myth 1: Taxes are bad.

Taxes give us such things as warning sirens for storm season, the US Armed Forces, safe highways, and Kindergarden teachers. I guess the question is then, why do Republicans hate Kindergarden teachers? This sort of reductionist argument is unfair and simplistic, but it's all too easy to attack taxes without talking about all of the wonderful things that taxes provide us. Everyone has thought of all of the things we would do with the money we paid in taxes last year, but let's just take a moment to think about what it bought us.

Myth 2: Tax cuts are good.

Let's hold up there a moment. Republicans love to talk about how they cut taxes, but Democrats cut taxes for the middle class and working Americans.  Is there a difference? Yes,  absolutely. The difference comes down to what economists call the multiplier effect. Imagine if that the government gave you and Bill Gates a ten thousand dollar tax break. What would you do with that money? If you're like most young people you would use it to pay off loans or you would buy something. That is, you would either consume now, or consume later in terms of freeing up future income by paying down your debt.  But what would Bill do? The question isn't really what would he do, it is would he notice. Most likely he would just save the money, sticking it in some bank account. 

Here is where the difference comes into play. When you spend that additional money, that ten thousand dollars, it multiplies and gets re-spent several times over. How many times it gets re-spent depends on a number of economic variables. But what about our friend Billy? He doesn't re-spend the money. Instead it sits in a bank, where it doesn't get respent. It may be loaned out, but the effect on the economy isn't the same. (Depending on a number of economic variables).  

The baseline is that not all tax cuts are the same, and that not all tax cuts grow the economy as much.

Myth 3: Tax cuts are more important than a balanced budget.

This myth is a question of priorities, but I feel obliged to point out that those tax cuts for the rich do not have as much impact on the economy and that they often result in budget deficit. The problem with deficits is that the government has to turn somewhere to finance that deficit and when it becomes debt. The government turns to the same credit markets that finance business growth, student loans, and home mortgages. The presence of such a large borrower in the credit markets makes it harder and more expensive for people like us to get credit for ourselves. So when you're looking to get a new car and are shocked by how much you're going to pay in interest, thank a Republican for budget deficits.