Two days ago, I explained that tax increases are bad policy.
More specifically, I warned that giving more money to government exacerbates fiscal problems because politicians respond to the expectation of more revenue by spending more than otherwise would be the case. And since they usually over-estimate how much revenue a tax hike will generate, that creates an even bigger fiscal mess.
Not surprisingly, I cited Europe to bolster my case. The tax burden has increased enormously in Europe over the past several decades, but that obviously hasn’t prevented a fiscal crisis in nations such as Greece and Portugal. And tax hikes haven’t precluded deteriorating conditions in countries such as Belgium and France.
But I also cited Illinois, which just got downgraded by Moody’s – even though state politicians just imposed a record tax hike.
This caused some angst for a lefty blogger in Illinois, who wrote that, “Operational spending is down since the Illinois tax hike.”
I gather he thinks this is some sort of gotcha moment, but two sentences later he admits that, “If Illinois hadn’t increased its taxes, it would’ve had to cut $7 billion more from spending to balance its budget.”
In other words, his post confirms my point about higher taxes translating into higher spending. He openly admits that the tax hike was a substitute for spending restraint.
What makes his concession so remarkable is that my argument wasn’t even based on one-year fiscal decisions. I”m much more concerned with trend lines, and you can see from the chart that Illinois politicians have been promiscuously profligate in recent years.
NEW TIME Today, at 9:30 AM PT: Get the Market Movements in Advance: William's Edge Webinar for January 30th, 2014 | John Ransom
NEW TIME Today, at 9:30 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for January 26th, 2014 | John Ransom