Not a great post title, but it may have caught your attention. This is my last post spurred by Terry Fallis’ The Best Laid Plans. In the book, our protagonist, a rookie politician, tries to convince his constituents that the government’s mini-budget is a bad idea. This is doubly hard after he already broke from his own party to support the government’s Throne Speech. His point is quite simple: In a slowing economy, tax cuts to businesses do not create jobs, and tax cuts to individuals do not spur spending, but saving.
The problem is really that people are idiots and can’t see past their own short-term gain. Just before Christmas, the promise of more money in their pockets sounds fantastic. Except, regardless of when tax cuts come into effect, people won’t see that benefit for several months.
And in a slowing economy, governments need to spend money on paying unemployment insurance benefits, welfare, and Keynesian, public sector, capital projects. Reducing the tax revenue only puts a higher burden on government spending that will either result later in higher taxes or even further reduced government spending. These tax cuts may appear to be good in the short-term, but they’re terrible in the long-term.
It drives me absolutely crazy when I hear people support short-term gains without considering the long-term damage.