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Monday, January 20, 2003

Robert Musil links to a Milton Friedman Op-Ed on the biggest isue in economics at the moment, the Bush dividend tax cut:

Many discussions of the economic effect of tax cuts and deficits implicitly assume that government spending is predetermined and independent of whether there is a tax cut or a deficit. In that world, deficits are produced entirely by a shortage of tax receipts. Raising taxes can eliminate the deficit without affecting spending. As I see the world, the situation is very different. What is predetermined is not spending but the politically tolerable deficit. Raise taxes by enough to eliminate the existing deficit and spending will go up to restore the tolerable deficit. Tax cuts may initially raise the deficit above the politically tolerable deficit, but their longer-term effect will be to restrain spending.

In the first of several post on the subject, Jane Galt wrote this on January 9th:

While I am in favor of holding down both taxes and government spending, broadly I agree with the propositions that government spending is the important factor to watch, not how it's financed; and that at the current levels of taxation and borrowing, increases in either are likely to have an effect too trivial to be measured in aggregate.

Does Milton read blogs?