The Biggest Myth in Washington

As stock markets shudder over the prospect of a recession, the government plans to help by both lowering key interest rates and by giving Americans back some of our money. The Washington Examiner has some thoughts on the issue:

WASHINGTON (Map, News) - If somebody grabbed your wallet and then handed you back a $20 bill, would you be grateful? Realizing the money was yours to begin with, you would probably call the cops rather than thank the thief.

President Bush’s latest gimmick to stimulate the economy by giving back to taxpayers $800 of their own money is the Washington equivalent of the “generous” thief. The biggest fairy tale in Washington isn’t Barack Obama’s voting record on the war in Iraq, but the notion peddled by Republicans and Democrats alike that the government has a big pot of its own money that it generously gives to people by “injecting” it into the economy as a stimulus.

In fact, government has only our money or money it borrows from lenders. The problem is it costs the government a major portion of every dollar it takes from us in collecting it and paying the interest on dollars it borrows. Why not just let us keep our money in the first place?

If you want to stimulate the economy in the long run, cut tax rates. It works every time it's tried. The Democrats thinks taxes are a zero sum game, meaning if you cut rates the Federal government gets less money, but in fact the opposite is true. By cutting rates there is more money left for consumers and investors to put into the system and thus generate more tax revenue over time. Whenever tax rates have been cut actual revenues to the Federal government have increased.

Congress needs to make the Bush tax cuts permanent, and then lower rates for both income and capital gains taxes. It'll work, but you'll never convince the Democrats who are locked into a very simple-minded view of taxation and revenue.