President Bush’s tax plan has been routinely criticized for giving tax cuts to the rich—especially the “wealthiest one percent.” While both sides of the political divide continue to argue as to exactly who gets the largest break by Bush’s tax cuts, the central issue is often missed: a tax cut given to any group ultimately benefits all groups. First, it should be noted that the government cannot give what it first has not taken away. This point calls for a revision of the language we employ in our tax-cut debates-according to this reasoning, government is not giving anyone a tax break; instead it is simply taking less away. When the people have more of the money they have earned, they have two choices of how they spend it—the two choices are simply either to save or consume. And when the people save, they buy some good that gives a promise to have some future price, which fluctuates with some risk. The buyer is better off because he now owns the good. Also, if the seller using the product is saving as well, he is better off because he has taken risk at some time in the past and has now money to dispense as he pleases. If the seller is a company trying to raise funds, the company is better off because it is now allowed to join in a new venture, which could mean employing more people and creating more wealth.
On the other hand, when people consume, they increase demand. This increased demand temporarily raises prices, which encourages companies to expand their production, thereby encouraging more production and more employment.
This argument is normally answered with the retort that government spending can also increase demand. In a sense, this is true. Government spending can encourage production and employ many people. Private spending, however, is better than government spending for two reasons: the creation of wealth and efficiency. When government spends other people’s money, many of the jobs that are created do not involve producing economic goods that make people better off. In the private sector, the jobs produce food, entertainment, clothing and other things that make people wealthier. When government spends other people’s money, many of the new job positions are for tax collectors and bureaucrats. These people do not significantly contribute to society’s well-being. Instead, every bureaucrat supported by tax dollars means that society has fewer goods that make people’s lives more comfortable and fewer technologies that allow people to pursue other goals that enrich our lives. The second reason why private spending is preferable to government spending is because government spending is not efficient. This claim is rarely disputed. On the whole, individuals are going to look after their money better than someone else who is spending another person’s money on yet another third person. Nearly everyone understands that the incentives are such that government wastes more money than private individuals.
Finally, if the government is not spending the money, it is redistributing it through welfare and other social service programs, engendering a form of radical egalitarianism that does little to inspire individual initiative. The lower-taxes approach helps productivity by encouraging people to work longer. People who make more money per hour have more incentive to work more. In other words, taxing people less is equivalent to paying them more, thereby encouraging them to work harder. Whatever society identifies as its objectives, increased productivity resulting from lower taxes creates more wealth for society to allow it to pursue these goals. Greater wealth not only enhances the financial well-being of its direct beneficiaries, but it also reinforces the economic standing of those whose jobs derive from healthy levels of consumption and saving. But the advantages of lower taxes, a smaller government, and accelerated private-sector economic activity ultimately extend to the most important purposes of social organization. For economic prosperity translates into power—the power for a society to act on its conceptions of order and justice and fulfill its sense of destiny in world affairs.
