Myth #3: Tax Increases Are a Cure for Deficits

Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of “Ten Great Economic Myths”. This material was prepared by Murray N. Rothbard.

Those people who are properly worried about the deficit unfortunately offer an unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent to curing someone’s bronchitis by shooting him. The “cure” is far worse than the disease.

For one reason, as many critics have pointed out, raising taxes simply gives the government more money, and so the politicians and bureaucrats are likely to react by raising expenditures still further. Parkinson said it all in his famous “Law”: “Expenditures rise to meet income.” If the government is willing to have, say, a 20 percent deficit, it will handle high revenues by raising spending still more to maintain the same proportion of deficit.

But even apart from this shrewd judgment in political psychology, why should anyone believe that a tax is better than a higher price? It is true that inflation is a form of taxation, in which the government and other early receivers of new money are able to expropriate the members of the public whose income rises later in the process of inflation. But, at least’ with inflation, people are still reaping some of the benefits of exchange. If bread rises to $10 a loaf, this is unfortunate, but at least you can still eat the bread. But if taxes go up, your money is expropriated for the benefit of politicians and bureaucrats, and you are left with no service or benefit. The only result is that the producers’ money is confiscated for the benefit of a bureaucracy that adds insult to injury by using part of that confiscated money to push the public around.

No, the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget. How and where? Anywhere and everywhere.

For more episodes, visit Mises.org/MisesReport

For more episodes, visit Mises.org/MisesReport.