From Brad DeLong's Semi-Daily Journal:
"Tax Shifts", Not "Tax Cuts"
Someone, somewhere, sometime has to pay for government spending--whether through normal taxes or through the extraordinarily disruptive and inefficient "inflation tax." It's for this reason that the press lies every time it refers to George W. Bush's fiscal policies as "tax cuts" instead of as what they really are: "tax shifts"--tax shifts onto tomorrow's taxpayers.
Gale, Orszag, and Shapiro make this point in something that now goes straight to the top of the pile:
DISTRIBUTIONAL EFFECTS OF THE 2001 AND 2003 TAX CUTS AND THEIR FINANCING
William G. Gale, Peter Orszag and Isaac Shapiro
June 3, 2004
Tax cuts are not free; they must be financed with some combination of tax increases or spending cuts. The central goal of this paper is to apply this standard insight from public finance to the analysis of the distributional effects of making the 2001 and 2003 tax cuts permanent. We estimate not only who benefits directly from the tax cuts, but also who benefits and who loses once the financing of the tax cuts is considered. We consider two scenarios: one in which each household pays an equal dollar amount to finance the tax cuts and one where each household pays the same share of income. In both cases, more than three-quarters of households end up worse off if the tax cuts are made permanent and financed. In addition, there are large aggregate transfers from the majority of low- and middle-income households to an affluent minority. These results show that, far from simply "giving people their money back," making the tax cuts permanent would impose significant losses on tens of millions of American households.
