The Politics of Bad Ideas, Research Paper Example

Tax Cuts, Government Size, and Loopholes

The ideas presented in The Politics of Bad Ideas by Bryan D. Jones and Walter Williams provide a unique perspective regarding the economy and its function in the United States. A lengthy discussion pertaining to concepts such as supply-side economics and the “starve the beast” tax policy give the reader the opportunity to analyze related functions within the economy such as tax cuts and deficits. However, before delving into these functions, one must first understand the two main concepts discussed in The Politics of Bad Ideas and the perspective the authors have.Supply-side economics can be defined as a school of thought that emphasizes more on “supply” on the prototypical “supply and demand” module. The reasoning behind this concept is to incentivize the producers in a nation to increase their production by lowering their taxes. This concept relies on the hope that demand will be able to keep up with production. Meanwhile, “starve the beast” tax policy is a strategy by American conservatives that strives to constrain government spending via fewer taxes. Fewer taxes inevitably reduce government revenue, which deprives the government of its ability to spend on social and regulatory programs. Although both concepts can seem attractive on its surface, Jones and Williams spend a large time picking them apart in their book.

Both authors agree that supply-side economics is not a successful means of growing the economy. This can be attributed to the supporters of supply-side economics basing their ideas on faulty economic ideas instead of evidence. For instance, the notions that demand will follow suit and continue to grow along with supply. Many regimes have tried to stimulate their economies with supply-side economics and results have not necessarily been successful. One of the most popular instances in which supply-side economics was utilized here in the Unites States was President Reagan’s application of it in the 1980’s. Essentially, supply-side economics is not a sound means of igniting the economy in that it is unreasonable to expect one economic phenomenon to react one way merely because of a single causal effect – in this case expecting demand to rise along with supply. In supply-side economics, it is expected that those supplying the products, producers, would receive immense tax breaks in order to incentivize their production. However in reality, with lower taxes for the government, many public institutions and services such as roads and utilities with decrease in terms of production or quality. Thus, the economy would inevitably collapse because of the domestic instability. On the other hand, raising taxes to an absurdly high number would allow the government to produce these services and make their quality high. This would however hinder consumers from being able to take advantage of anything besides these public goods because too much of their income has been taken from them through taxes. They would be turned off from spending any more than they need to.

Ultimately, the optimal percent to tax citizens is arbitrary and not necessarily predictable. It could be anywhere between 0% and 100%. Taxing too little restricts the government from putting the money back into the communities and consumers, which inevitable affects producers. Taxing too much restricts consumers from using whatever money they have left, which also inevitably affects producers in that no one would purchase their products. Understand this phenomenon is essential to understanding the basics behind economic behavior. Supply-side economics errs along the lines of assuming that lowering taxes will absolutely stimulate economic growth. However, as discussed, there is a danger in lowering taxes too much just as there is a danger of raising taxes too much. Understanding how to manage taxes would be the optimal solution to this concept.

As they did with supply-side economics, Jones and Williams find fallacies in starve the beast tax policy. This tax policy’s main objective is to cut taxes all around. The reason being is to restrict the government from using tax dollars for what this policy’s supporters believe is wasteful programs. In other words, the ultimate desire is a smaller government via a worsening fiscal situation in order to force spending cuts instead of asking for them. This is essentially the only means to rid of the uncontrollably high budget deficit in the eyes of the supporters. Much like with supply-side economics, Jones and Williams find themselves troubled with this school of thought. Essentially, they argue that cutting taxes does not necessarily guarantee that spending will decrease over time. In fact, there may have a negative relationship between the revenues and expenditures. This argument is parallel to the one made regarding supply-side economics. One economic phenomenon does not always correlate to an expected result. In fact, it may sometimes have the opposite effect. This is what is happening today in actuality. Despite low tax rates, spending is at a historically high rate, which is set to potentially place the United States in a deficit level as high as it was during World War II.

All of this poses the question of whether tax cuts even limits the size of the government at all. The simple answer to this is no. In fact, it may even do the opposite. Looking at the government in America today, it was just noted that spending is at a historically high rate. Interestingly, this process is embraced by tax cut supporters. In essence, it is expected that spending will increase despite a decreasing budget. The government still has the ability to “borrow” money for anything it needs, particularly defense. Supporters, who are almost entirely comprised of conservatives, desire this. However, it is only desired so long as they are the chief policy makers or have a conservative president in office, such as George W. Bush in the 2000’s. Once their policy makers are out of leadership, conservatives immediately turn on the deficit and point out how uncontrollably high it is, much like they did once President Obama took office. In turn, it is their sole agenda to ensure that funding for government controlled institutions such as Social Security and Medicare. Thus, it is clear that supporters for tax cuts may have ulterior motives besides a “smaller government.”

Reducing spending on institutions that are not necessarily in their favor may actually be at the top of the agenda. Regardless of whether or not this is the truth, there is no denying the loopholes behind a lower budget as a result of lower taxes. That loophole is to keep spending money anyways.On the contrary, a fix to this issue would not be for policy makers to focus on reducing spending first either. This would mean focusing entirely on lowering the budget without being able to put tax dollars back into the economy effectively. By having a balance of reasonable tax levels and spending, the government can better moderate its inflating budget while still serving the public to the best of its ability.

Reducing spending and cuts should occur concurrently.Counterbalancing tax cuts with spending cuts allows for two things. First, the reduced spending allows the government to reduce its horrific budget. Second, tax cuts allows for the American people to have more money to spend on products, which allows for more money in circulation. This, in turn, can also help reduce the budget to a certain extent as well.

It is a shame, but the American Political institutions and political parties have indeed done a poor job of controlling the deficit. This is because political parties have become more and more fixated on pursuing legislation that advances the agenda of their respective party versus enacting legislation that would benefit its citizens. That means avoiding compromise and only settling for an extreme. Often times, these extremes are coated by a desire to pursue ulterior agendas much like the one discussed regarding tax cuts. Politicians in office have specialized in telling the public the positives behind their decisions while hiding the agendas. For instance, when conservatives supported President Bush’s increased spending because it would make it more difficult to pass newer spending legislation in Congress. Indeed, it sounds convoluted and odd but it was entirely consistent with the plan. It would allow Congress to put on a “fiscal straightjacket” as some Republican Members of Congress put it. It comes to no surprise that these same Members of Congress completely jumped ship upon President Obama’s inauguration. The budget deficit immediately became an issue and the Republican majority in the House took it upon themselves to assume the role and responsibility of gatekeeper and finally use that “fiscal straightjacket” by blocking all legislation from passing.

This method of twisting policy one way and another is what has fooled the American public into letting the federal government enact the bad ideas that the authors criticize. It is not necessarily one side or another of the political spectrum that is guilty. Ultimately, they are all responsible. As stated earlier, the American public only knows as much as the policy makers want them to know. One moment, deficit spending is a good thing in that it would put a stranglehold on Congress in the near future to fix the budget. Congress, meanwhile, calculated that “future” and made sure the stranglehold occurred in a convenient time and the next moment, deficit spending was a sin. The American public is now forced to face the consequence of their Representatives decisions.

With this said, the American public is not entirely immune from responsibility for this mess. Much like their leaders, the public has been absorbed with political lines and feels the need to pick one side or the other in terms of political identification. Now more than ever, the desire to identify with one political party is undeniably important to the public. The consequence of identifying with one party over another is feeling obligated to conform one’s views, whether it be fiscal or social, into that of his or her political party. As a result, the public has become absorbed with the concept of abiding by their political party and exhibit strong loyalty to their party’s leaders despite the fact that some of their policy has the potential to actually hurt them more than help. The loyalty that results from this identification ultimately disallows for the ability to compromise. Instead, it leads to bickering and each side feeling as if their extreme perspective on how to solve the economic issues at hand is the only correct method, much like it unfortunately is in Congress.

It becomes clearer to now see why these bad economic ideas continue to persist. The current political system in the United States allows for a number of flaws to endure. First, it allows political leaders to hide crucial facts behind their motives of decisions made. Second, it obligates the American public to conform and ultimately accept one of two potentially flawed schools of thought regarding its economy. In a perfect world, there would be compromise where the rich and poor alike benefited from their tax dollars that were paid in proportion to their salaries. In turn, the government would allocate its resources appropriately to ensure that the money garnered from taxes and products would go back to its citizens in the form of publicly funded institutions and services. Unfortunately, this is not a perfect world not a perfect nation that is run by not so perfect individuals. Failed economic policies such as supply-side economics and “starve the beast” are a bi-product of a political party attempting to further its true agenda. These policies are merely stepping stones that hopefully, from their perspective, go well in order to gain public support and, more importantly, get them one step closer to achieving their ultimate goal. Whether these goals the conservatives in office were seeking to achieve included shutting down publicly funded institutions versus “reducing the government” is beside the main point. The main point is that the process taken to achieve these goals is arduous and penalizing to the American public these leaders were elected to defend.