On a press teleconference this afternoon with Steve Forbes, Chris Christie confirmed that his plan is to reduce state spending before reducing taxes. The Lonegan campaign has an radio ad out today that makes an issue of that.
Forbes spent much of his time on the call distinguishing between the flat tax plan that he proposed in his 1996 presidential campaign to Steve Lonegan's current flat tax plan. Forbes said that his flat tax would have reduced taxes for most everybody, that his plan exempted the first $46,000 in income for a family of four. Lonegan's plan, he said, would increase taxes on the majority.
Forbes's role on the call was really that of a cheerleader for Christie and to debunk Lonegan's plan. However, I would have liked to have heard him speak on the advisability of keeping the Corzine/Codey/McGreevey tax rates stable, while reducing spending as a way to improve New Jersey's economy.
It has been a long time since I earned my degree in economics. I'm not an expert, but I know enough economics that Christie's plan is giving me a headache.
Pro-growth Laffer/Kemp/Reagan economic theory is based on the premise that lowering marginal tax rates increases economic activity and leads to a higher level of government revenue.
That proved to be the case in the Reagan years and during the early Bush 43 years. It was also the case in the JFK years.
Keynesians believe that government spending increases output, or aggregate demand, by a multiplier, i.e. a $10 billion dollar increase in government spending will cause total output to increase $15 billion dollars, if the multiplier is 1.5. For Keynesian economics to work the multiplier must be greater than zero.
I don't know of a school of economics that has studied the effect of reducing government spending while keeping taxes stable. I don't know if it has ever been done.
We live in New Jersey, so we know the effects of raising spending, raising borrowing and raising taxes. We've been living that for the last seven years. It is stifling. It drives people and businesses away.
What I like about Christie's plan is that it intentionally reduces the size of government. I think that is good for the soul and good for personal freedom.
As we know all to well, Republicans failed miserably in reducing spending when we last controlled Trenton, and Washington for that matter. In that context, Christie is truly promises to take us in a radical new direction.
But will it work without simultaneously reducing taxes? Will we be able to attract businesses back to NJ, as both Christie and Lonegan say their plans will do, if we wait to give them the incentives to come? Will businesses that have managed to stay here and survive start creating new jobs with the promise of tax relief to come?
I don't know. I would like to hear someone smarter than me talk about it.
Maybe it will be a topic in the next debate.
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During the Reagan administration, there were huge increases in FICA taxes, and Social Security became taxable. (In fact to meet the Social Security taxation threshold one has to count all your taxable and non taxable income such as Muni bonds). There was also a big tax increase in 1982 to offset the Reagan cuts. Enough with the myth of the Reagan tax cuts did it all.
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