The ongoing debate over tax cuts has been framed, as it always is, in stark terms: Either we stimulate the economy by cutting taxes — leading to a rise in deficits and debts — or we raise taxes to pay the ever-higher cost of government. In general, Republicans have tended to favor the former, arguing that tax cuts, paradoxically, will lead to economic expansion and higher tax receipts over time. Democrats deny this, arguing that tax cuts will increase the debt and deficit, and leave America unable to defray the costs of government.
There is, however, an excluded option that neither side is willing to acknowledge: the possibility of cutting the size and cost of government. The debate over whether to raise or lower taxes is a false dilemma: It is the size of government, and not the level of taxation, that is the real rub.
The notion that tax cuts can lead to greater tax revenues has been popularized in recent decades by economist Arthur Laffer, whose “Laffer curve” suggests that somewhere between zero and 100 percent taxation rates (two extremes that are both assumed to yield zero revenue), there is an optimal rate that will lead to more revenue than either a lower or a higher rate. Economists disagree widely on what that rate may be, but the notion that there exists an optimal tax rate — which is significantly lower than current rates — is what is driving the GOP push for tax cuts right now.
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