Byron Schlomach

Taxes Devastate, Cuts Improve

Posted on June 24, 2009 | Author: Byron Schlomach
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Tuesday's Wall Street Journal editorial page engaged in a bit of triumphalism. The editors showed that their 2003 predictions of where monetary policy was leading were better than those of Ben Bernanke. Bernanke's comments at a 2003 meeting of the Board of Governors make clear that lots of detailed knowledge can just as easily addle a brain as create clear thinking.

Methinks this might be the problem with the editorial page of the Arizona Republic as they opine on the economic devastation of budget cuts. Every dollar spent in the state budget is the most important dollar in the world to someone. But all the wailing over budget cuts tends to make one lose sight of the big picture.

The ability of enterprises to provide for economic opportunity and jobs is the big picture. Governor Brewer's advisors and the newspapers are convinced that cutting spending will be worse than raising taxes. But then the Federal Reserve Bank of San Francisco recently published an article summarizing research on economic multipliers. It turns out that a dollar of government spending results in 70 cents of job-creating activity after two years. A dollar in tax cuts results in $1.30 to $3 of job-creating activity after two years. Put another way, a $1 cut in spending cuts job-creating activity by 70 cents. A $1 increase in taxes cuts job-creating activity by as much as $3.

So now let us engage in some triumphalism of our own. We've said all along that tax increases will hurt more than help. Once again, the evidence is on our side.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
Learn more: 
Federal Reserve Bank of San Francisco: Economic Research and Data
Arizona Republic: Todd Schwarz: Imagine a day doing without state workers


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