Readers Question: What the benefits and the negative effects of reducing all taxes?
I wrote an Essay on the advantages and disadvantages of tax cuts
The idea of cutting all taxes is key element of libertarian politics. Cutting taxes is often a mantra repeated by conservative parties, although in practice, they usually find it more difficult to cut taxes than their rhetoric would suggest.
Firstly Cutting all taxes has an opportunity cost, it requires either:
- Cutting Government Spending
- Increasing Government Borrowing
Of the two, cutting government spending, is the only policy which is sustainable in the long term.
Generally, to cut all taxes, you need to make a good argument about why the Government is spending too much. Most politicians will start from the premise that ‘it is good to cut taxes’ but when they get into power they realise it is actually very hard to cut spending.
The answer may depend on the country. For example, some countries with high tax burdens may find that cutting taxes may increase incentives. However, for a relatively low tax country like the US, I am very sceptical of this argument.