Are tax cuts warranted? The classic economic theory of “Guns and Butter” is used to illustrate the Production Possibilities Curve, or the maximum output possibilities for two sets of goods based upon available resources during a specific time frame. Guns represent military or defense spending, while butter represents the investment in civilian goods or services. It is a macroeconomic way of modeling the choice a nation must make between two options when spending its finite resources. Further explanation of the subject or a modeling example are well beyond my ken. But in a very simplistic manner, this concept can demonstrate the real-world choices government makes or doesn’t make.
For the moment, consider finite resources as the amount of revenue the government raises through taxation, while defense or programs such as education, housing, Social Security, or healthcare are (butter) choices for spending. Using the guns and butter theory, the government would have to allocate its funds to respective programs to fit within the finite resource of revenue, or alternatively, raise more revenue through taxation. Clearly, the government does not believe this a necessary response.
The George W Bush Administration
During the 2000 campaign for President, George W Bush, promised a significant tax cut to return to the people the surplus of the Clinton years. After the election, in June 2001, he did just that. Following the terrorist attack in September 2001, he declared the Global War on Terrorism and sent troops to Afghanistan to kill the perpetrators. In March 2003, the U.S. invaded Iraq, and in May 2003, Congress passed the second round of tax cuts. Finally in December 2003, the President signed a bill introducing the Medicare Prescription Drug Benefit. So, in the midst of two wars and a major new social program on the horizon, Congress moved forward with the 2003 tax cuts.
Guns or butter? Why choose when we can do both? But can we? The Bush administration chose both guns and butter and succeeded encumbering future generations with trillions of dollars in debt. How can anyone in good conscience suggest this was the right decision? Cutting taxes while making war and introducing a major social program is the height of fiscal irresponsibility.
Current Plans for Tax Cuts
Yet the Republicans now in control of every branch of government plan to make the same dreadful decision, despite still engaged in Iraq and Afghanistan and now faced with the need to spend additional unbudgeted billions of dollars to repair the damage caused by Hurricanes’ Harvey, Irma and Maria. They still believe the fantasy, or at least, pretend to believe that tax cuts stimulate economic growth and will pay for themselves. Not even the recent experience of catastrophic results from Governor Sam Brownback’s failed experiment of massive tax cuts that produced enormous deficits has registered with these lawmakers. Have we not learned anything? Or perhaps as Sir Winston Churchill said: “Those who fail to learn from history are doomed to repeat it.”