Monday, November 22, 2010

The blur between taxes and spending

Greg Mankiw wrote an interesting piece in a New York Times column this weekend. Here is a key excerpt:

Imagine that there is some activity — say, snipe hunting — that members of Congress want to encourage. Senator Porkbelly proposes a government subsidy. “America needs more snipe hunters,” he says. “I propose that every time an American bags a snipe, the federal government should pay him or her $100.”

“No, no,” says Congressman Blowhard. “The Porkbelly plan would increase the size of an already bloated government. Let’s instead reduce the burden of taxation. I propose that every time an American tracks down a snipe, the hunter should get a $100 credit to reduce his or her tax liabilities.”

In his column, Mankiw points out that there is no distinction between the effects of the two policies. They both benefit "snipe hunters" by $100, and at the end of the day, the remaining taxpayers have to pick up the same amount of slack to pay for either program. The two programs are equivalent, yet our political parties act as if there is something fundamentally different between these two proposals. The rest of the article is worth a read.

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