Spending Is The Tax

by Jerry O’Driscoll

In an opinion piece in today’s Wall Street Journal, Martin Feldstein argues that “Tax Increases Could Kill the Recovery.” He harks back to the Depression experience and Japan’s in 1997.  If Milton Friedman is correct, however, the tax increase has already occurred. For Friedman, government spending is the tax — the measure of the extraction of real resources from the economy by government.  Tax finance, deficit finance, and inflationary finance are the 3 possible methods of financing the extraction. Each method has its own effects and certainly can create its own problems.  Because of uncertainties regarding the effects of spending and future levies (tax, deficit or inflation) on their own incomes, citizens may not immediately adjust their spending.  But the average citizen understands the government spending must be financed.

Why Not A Big Tax Cut?

Chidem Kurdas

We have an exact measure of the most recent recognition lag. This month the National Bureau of Economic Research identified the beginning of the current recession as December 2007. So the lag is about a year.  Click for NBER You’ll recall that in the 1950s Milton Friedman pointed to the time it takes economists to recognize a recession as one of the lags Continue reading