Sunday, August 24, 2008

Government spending is the key to tax costs

There is a very interesting article this weekend in Barron's magazine (subscriber or purchase at newsstand) on tax cuts entitled 'When Is a Tax Cut Really a Tax Hike? Usually' by Gene Epstein which highlights how tax cuts are not really tax cuts if they are accompanied by a rise in inflation-adjusted spending (which is what we currently have) - that spending will have to be recaptured by the government at some point through higher taxes. In other words, although tax cuts at first glance might be popular, the ultimate tax burden might be rising at the same time because of the more fundamental driver: spending. Makes sense - but so important to bear in mind especially with populist tax cuts that can be proposed at a time when the US governments budget situation is poor - and spending is the real item to watch.

1 comment:

william said...

the real tax burden on a nation is not what the government takes in in taxes but what the government spends