The federal government is considering a second round of stimulus checks through the HEROES Act. This comes after the CARES act doled out $1,200 checks to American taxpayers along with various business relief programs. Although these policies may be well-intended, they fail to address the root of our economic woes—COVID-19 and government intervention in the economy. As greater stimulus is further discussed throughout the halls of Congress, the greatest relief of burden on the American people would come from a wave of tax cuts.
With such vast sums of money being sent to Americans, it is important to dive into the origin of this funding. As the great economist, Henry Hazlitt wrote, “Everything we get must in some way be paid for and all government expenditures must eventually be paid out of the proceeds of taxation.” However, the U.S. has been running a budget deficit since 2002 meaning spending has consistently exceeded tax revenue. This means the tax burden must fall on future Americans (Hazlitt, 36).
What about printing more money to pay for the stimulus? Many argue that a time of national crisis should be met with this massive influx of individual liquidity wrought from handing out cash. This policy is certainly popular as many Americans want money in-hand immediately. However, this method of increasing the monetary supply creates inflation, reducing the value of people’s money. Therefore, “Inflation itself is a form of taxation… not only on every individual’s expenditures but on his savings account and life insurance,” (Hazlitt 176).
Tax cuts are a better solution. Stimulus checks come at a cost greater than the benefit they provide. They increase taxes, whether at present or in future generations, and raise the overall cost of living. Tax cuts would give Americans what they want—more money in their pocket—without the ramifications of stimulus money. Rather than take money from Americans only to give them some of it back later, they allow Americans to keep more of their income as it accrues. This means more money to immediately pay bills, buy groceries, and increase feelings of financial security. Unlike stimulus checks, tax cuts do not involve the destruction of wealth.
If Congress seriously considered tax cuts as an avenue for fiscal relief, they should begin by rolling back income and payroll taxes so Americans see more money in their pockets expediently. Although tax cuts of any kind, even corporate tax cuts, benefit workers and consumers, it is easier for the average American to see the effects of payroll and income tax reductions. Lawmakers also have an interest in this visibility. Stimulus checks give politicians a tangible example of what they did to “help.” Though potentially not as blatant, seeing a larger pay stub every week from decreased taxes could be just as effective politically.
Ultimately, tax cuts bring increased economic activity, even if some of the money is put into savings. Keynsians often argue that people, particularly the wealthy, “hoard” money when their taxes are reduced, but this fails to capture what savings actually are. Savings are, “the acquisition of interest- or dividend-earning financial assets,” like bank deposits, stocks, and bonds. Savings are used by borrowers to spend and eventually distributed back to the prudent savers for future consumption.
When the economy is bad, there is an urge to simply “give” people money. However, giving people stimulus money comes at a cost, usually to the very people that cash those checks. There is no way to give out stimulus checks without first taking from Americans through taxes, the national debt, or inflation. Therefore, the only options provided to the American public are immediate taxes or deferred taxes. The federal government’s best way to spur economic activity in the face of the COVID-economy is to move in the opposite direction and let people keep more of their hard-earned money.
The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.