Monday, May 9, 2011

The trouble with balancing budgets through tax increases

I remember reading a personal finance book when I was fresh out of college that said people who think a bigger paycheck will solve their are sadly mistaken. If you don't see controlling your spending as the issue, you will always respond to increases in income with increased spending and never get out of debt.

That lesson came rushing back to me while watching this short video from the Center for Freedom and Prosperity:

Item number two in the video came with the claim that each new tax dollar brings with it a $1.17 increase in spending. If that is true, than raising taxes without controlling spending will never balance the budget because politicians will just spend it on new projects.

I'm reminded of the time Milton Friedman recalled a claim from John Kenneth Galbraith that every problem with New York City could be fixed if taxes doubled. Friedman said the tax revenue has tripled since then and all the problems are worse.

1 comment:

  1. I like these videos, economics and women, two of my favorite things. If somehow bacon could be involved, I would need nothing else.