Paul L. Caron
Dean





Tuesday, December 1, 2009

Posner & Shaviro on the War Tax

Following up on my prior posts:

Two heavyweights weign in:

It is possible that the Afghanistan War is a bad idea; if so, the remedy is to end the war, not to raise taxes. If it is a good idea, the benefits will accrue to the inhabitants of the future, who will be protected from terrorists and other baddies, not us. We perform a benefit for the future, and we charge them for our costs; what is there to object to? Deficit spending for what is in effect a capital investment—as opposed to spending on current consumption—is justified. If the War Tax is imposed, we simply transfer additional wealth from ourselves—including the soldiers and others already making the sacrifices—to the future.

Just as the war must be evaluated on its own merits, so must taxation. If the real goal of the tax is to reduce the deficit, that’s fine; just don’t call it a “war tax” (as long as we are explaining things to the American people); call it a “tax.” If, as many economists believe, now is the time for further stimulus; a tax is a bad idea. We’ll have to borrow even more to offset the demand-suppressing effects of the tax. Whatever the case, the possibly good fiscal reasons for raising taxes are independent of the war in Afghanistan.

From that perspective, any tax increase helps by narrowing the gap a bit, and the fact that it's targeted to Afghanistan war expenses is mere detail.

But the counter-argument, to my view decisive for now, is that this is the wrong time for implementing a move towards budgetary balance. Just as FDR taught us the hard way in 1937 that returning to budgetary balance needed to wait until the economy had fully recovered, so we would learn the same lesson now. ...

But keep in mind the key word in the above paragraph -- now (including 2011) is the wrong time for IMPLEMENTING, not for enacting, tax increases. I believe that tax increases moving us back towards fiscal balance are an inevitable part of what's needed, and that the sooner they are enacted the better. Only, the implementation needs to be a bit more delayed -- not to the extent of making it clearly hypothetical and politically unrealistic, but sufficiently to permit recovery, and indeed to encourage moving economic activity up in time so that it will precede the effective date of pre-announced tax increases.

Update:

https://taxprof.typepad.com/taxprof_blog/2009/12/posnr-shaviro.html

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Tracked on Dec 2, 2009 6:41:20 AM

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