A few days back, I wrote about my uneasiness with the quasi-Keynesian rhetoric that’s surrounded Bush’s tax cuts. But a conversation with a friend made me realize that the tax cuts are hardly a unique case. In fact, it seems like a lot of things I’m generally in favor of are defended with some bizarre arguments.
Consider the plan to stop double-taxing dividends. In the State of the Union, we again got the “stimulus” argument, which won’t quite wash for reasons I’ve rehearsed. Then we have the persistent use of the adjective “unfair,” as in “I ask you to stop the unfair double taxation…” Well, I don’t know about that. After all, they’re double taxing everyone’s dividends — it’s hard to see how that’s any more unfair than taxing anything else you might care to name. It’s easy enough to avoid the tax — you just don’t take your income in the form of dividends. The real problem with double taxation, as anyone who’s taken an econ class or two will doubtless tell you, is that it distorts time-preferences, inefficiently shifting resources to present consumption that would optimally be put into longer-term projects. But you don’t hear Dubya saying that.
Then there’s free trade. This is always pitched as a way to “create jobs,” which isn’t really quite right either. In the short term, liberalization shakes things up (though of course, that’s only because there were trade barriers in the first instance) and may cost jobs. In the long run, I don’t know that you can confidently predict an increase in the net number of jobs — what open markets really do is reallocate jobs more efficiently, in accordance with the comparative advantages of workers in different regions.
These things admittedly don’t make good bullet points, but the danger is that if good ideas are sold on false grounds, then those grounds will nevertheless be considered the test of whether the policy has succeeded. If tax cuts don’t produce a short term “stimulus,” and liberalization doesn’t clearly increase the number of jobs, people will conclude that, in the words of Dr. Evil, freedom failed.
