Given that government spending will rise (and must rise) with economic growth, there are three options for raising revenue without a deficit.
The first is through taxs. The second is through debt. The third is through fiat money issuance (seignorage).
Taxes in the US are already low enough that further reducing will have diminishing returns on stimulating the economy. furthermore, too low a tax rate will actually risk public apathy toward government, because the public may feel that its someone else's money that the government is spending.
Debts is good for the evolving economy under finance capitalism. The entirely economy is shifting toward debt-driven and it was a formula first devised by sovereign debt. Greenspan, when his advocates paying down sovereign debt with the accounting "surplus", he was really out of tune with economic reality, spoken as a true central banker. There is only one problem with debt- and that is interest cost. Larger and larger portion of the budget and the economy is taken up by debt service. But economists are beginning to redefine as a stimulant rather than a retardant, and within the context of debt grwing slower than growth, it is logically sustainable. The political fight is not to reduce debt, but who spends the proceeds.
The third option is very new. Some money specialists beginning to suggest that fiat money is preferable to debt, becasue the effect on inflation will be more than off set by the reduction in interest payments (to 0% on new money). The idea is very promising, but is adamnently opposed by banks and the massive debt market which is bigger and more powerful than the equity market, who will lose the interest incomes and the profit potenmtials from interest rates swaps. The discipline of fiat money is the same as debt. Its growth must stay behind the growth of the economy. But an expanding monetary base from fiat money can be insulated from hyperinflation. A control inflation rate, say double the growth rate (6% inflation with 3% GDP growth) will last for a century or two before the formula will run into trouble. It is have a sustainable, long term stimulative effect on the economy by assuring credit and liquidity. Some one is going to get the Nobel Prize for this within a few years by catching up with reality with an academic explanation, as always. My own view is that the fiat money option is the most progressive.
Henry C.K. Liu
Doug Henwood wrote:
> Michael Perelman wrote:
>
> >Regarding what Nathan wrote below, ordinary people have seen there standard of
> >living fall, and cutting taxes is one of the few possible ways in which
> >they can
> >hope for improvement. You are underestimating the ability of the leaders to
> >confuse the issue.
>
> U.S. hourly, weekly, and household incomes are up pretty strongly over the
> last couple of years, so that may be one reason that polls show little
> support for the Repub's tax cut agenda. Things might change in a downturn.
>
> When I was in Toronto in the fall of 1997, I was interviewed for a TV talk
> show hosted by Brian Mulroney's former pollster - Alan Gregg was his name,
> I think, but I'm not sure - a smart guy despite his conservative politics.
> After the taping, he told me something like "Your politics are the way of
> the future. The right-wing message is out of steam." I asked him whether he
> was talking about Canada or the U.S. He said everywhere, and specifically
> singled out tax cuts as an idea whose time had passed.
>
> Doug