Huh?

By Megan McArdle

Have I somehow wandered into the middle of an argument with someone else? Who said that only cranks and economic illiterates disagree with me about tax cuts? Who even said that I favored the tax cuts? Other than the capital gains cut, I don't particularly care either way. Readers asked what were the substantive arguments in favor of tax cuts; I linked to one. That doesn't mean that it's guaranteed 100% correct; only that it is a serious argument that merits being taken seriously.

Alternatively, we may be arguing about the notion that the deadweight loss of the taxes necessary to fund new spending should be taken into account. Matt seems to believe that this is some kind of fringe, crank idea that only crazy 'wingers like the head of the National Bureau of Economic Research would endorse. But since the idea of deadweight loss is not controversial, it is hardly a "minority viewpoint" that we should take it into account when contemplating new spending. It is the size of the loss that is in dispute, but while Marty Feldstein's figures are at the high end, I would hardly characterize Harvard's George F. Baker Professor of Economics as some sort of crank or fringe philosopher.

Those figures are high for my taste, but the size of the figure is irrelevant to the substantive argument, which is that if you want the government to spend money on something, you should add the deadweight loss of the tax to the direct cost of the program in order to calculate what it will really cost taxpayers. Whatever the size of that deadweight loss (and I've no doubt we could have a rousing argument about how big it is), that seems like a fairly uncontroversial thing to say.

This article available online at:

http://www.theatlantic.com/business/archive/2007/09/huh/1888/