Raising taxes - be it the counterproductive idea of raising the federal gasoline tax 20 cents a gallon or any of the panoply of proposed tax hikes at the state and local level - retards economic growth more and digs the fiscal hole deeper. As former Treasury Department official Bruce Bartlett [Townhall columnist] points out, tax rates on cigarettes are already so high in some places (such as New York City, where the price of a pack of cigarettes has been pushed to $7.50) that tax evasion is rampant and revenues are beginning to fall.
Ohio's Republican state Senate president Doug White illustrates how state officials are allowing the fiscal crisis to corrode their principles where gambling is concerned: "I do not like gaming, I do not participate in gaming and I do not encourage anyone else to participate in gaming because it's a loser's game," he said. Yet, White has vigorously pushed a bill in the Ohio Senate that would put slot machines in the state's horse-racing tracks.
Worst of all, many governors are also pushing the idea of an Internet tax cartel that would allow states to impose their sales taxes on people making Internet purchases who don't even live in their state. In truth, this is simply an old bad idea looking for a new excuse to justify it. The states think they've found their excuse in the revenue shortfalls caused by an economy suddenly too weak to support the extravagant spending they enacted during the good times. Anyway, most e-commerce is business-to-business and thus not even subject to the sales tax.
Frank Shafroth, executive director of the National Governors Association, laments that if only states could tax online sales to individuals who live outside their borders, they could plug 30 percent to 50 percent of the state budget deficits this year. What he neglects to point out is that the governors' lobby was pushing this Internet tax cartel scheme even when state coffers were awash with revenue.
The only effective way to guard against budget gaps during economic slowdowns is to minimize economic slowdowns in the first place and limit spending during economic good times. Colorado, where Bill Owens is governor, has an effective Taxpayer Bill of Rights that does it right - limiting growth in state revenues to the rate of inflation plus population growth.
Liberals love to quote John Maynard Keynes, but just read his words back in 1933: "A reduction of taxation will run a better chance than an increase of balancing the budget.
To take the opposite view resembles a manufacturer who, running at a loss, decides to raise his price. And when his declining sales increase, the loss decides that prudence requires him to raise the price still more. And who, when at last his account is balanced with naught on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss."
Cutting tax rates to revive economic growth as President Bush wants to do is no "riverboat gamble." It is the prudent thing to do.