January 2001
Editor's Notes
Many North Americans are starting to brace themselves for the inevitable. The financial sections of our newspapers have been giving warnings for some weeks now: favoured stocks have taken a beating, the shine is off the dot-com gold rush, and now the auto sector is slowing production in response to reduced consumer demand. Surely an economic slowdown, or at least a period of slower growth, is at hand.
So why, then, is incoming US president George W. Bush so insistent in his demands for a whopping tax cut? Intuitively, we'd expect him to hang on to whatever money is flowing into government coffers. If the anticipated slowdown materializes, he will have less tax money with which to run the administration and provide government-funded programs. Presumably now is not the time to turn away any tax dollars that might be coming in.
From this line of reasoning it is a short hop to, "The new president just wants to give the rich a break at the expense of the poor." It would not be "the Canadian way" to be so selfish.
Here's one example of intuitive reasoning leading us astray. When it comes to producing solutions to complex problems, our intuition is not necessarily the best guide. As this issue of Fraser Forum argues, not only is George W. on the right track, but Canada should be following his lead with a vengeance. Historically, tax cuts have led not just to more vibrant economies, but to more tax dollars coming in to government. When tax rates are lower, the government actually receives more revenue.
That may sound counter-intuitive, which is no doubt why the president-elect's plan is encountering such opposition even before he takes office. But consider what we ourselves would do if times were tough. If some of our money was freed up, wouldn't we use it to do some of the things we'd been putting off? Buy another car or house? Buy a computer so we could start a small business? Buy some much-needed equipment for our enterprise? Since others would do that, too, wouldn't that have a stimulating effect on the whole economy?
Maybe we can let intuition be our guide; all we need to ensure is that it is the right intuition guiding us.
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