Fiscal Irresponsibility

For an hint of what might happen to the US economy if a Republican president were to impose deep tax cuts, consider the plight of a humble string of multi-coloured plastic beads, the cheap – but coveted – souvenir of Mardi Gras – which used to be exempt from Louisiana sales tax. But this year, Louisiana lawmakers were forced to change this in order to help close a $ 3 billion budget deficit caused primarily by what might appear to be irresponsible earlier tax[1]

Donald Trump, John Kasich, and Ted Cruz all promise tax cuts that could cost as much as $10 trillion in revenue over ten years. They place their trust in the economic boom that will in their view inevitably result as pent up spending desires are unleashed.

But this formula didn’t work for Louisiana (hence the tax on the beads) any more that it did for Kansas and Oklahoma: they all hitched themselves to the same fallen star and plan to borrow (bond market) to make the difference.

No one wants to pay higher taxes.

But then no one really wants the state or country in which they work and live to go bankrupt either.

At the end of the day when all is said and done, who ends up holding the bag?


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