We Still Want Tax Cuts, Even if They Aren’t Accompanied by Spending Cuts


President Trump announced this week that he plans on suspending payroll taxes until 2021. To me, it seems clear that libertarians should be thrilled to hear that there is a possibility for $950 billion reduction in taxes paid in 2020. However, within libertarian circles, there appears to be a disdain for tax cuts that are not met with equivalent government spending cuts. See for example, this 2017 article posted by Libertarian Party staff. These criticisms, I think, have plausible grounding. They argue that without a decrease in spending the government will have to borrow money, inflate the dollar, or increase taxes somewhere else in order to pay for the tax cut. Sure enough, this is likely what will happen. But I think there are reasons for libertarians to still be happy about (although not applaud Trump [it’s not like he read Man, Economy, & State and realized the truth, beauty and justice of liberty]) the coming tax cut.

1. They Might Not Borrow, Inflate, or Increase Taxes Elsewhere

Our libertarian theory of the state, no doubt, tells us that this is not likely. Almost any chance politicians get to loot the property of others they will take. But, it certainly isn’t a logical impossibility that the next budget is simply smaller because there is less government revenue. Surely, many politicians have falsely claimed to us that they will balance the budget, but with a tax cut of this size, there is all the more incentive to create a new government budget which is smaller than years previous. We should welcome this tax cut even if we know the likely outcome will be that of borrowing, inflation or greater taxation in the future.

2. It Gives Us Time

Another benefit of a tax cut is that it gives us more time for revolutionary action. Even if the coming libertarian revolution does not come in my lifetime, we can still aim at lesser goals such as the repudiation of the public debt. If the government borrows in order to cover the deficit caused by the tax cut, the repayment of this debt will come some time in the future (as opposed to taxation today). If we can achieve (what I will admit is a lofty goal) a repudiation of the entirety (or even a portion) of the public debt today, then that is less taxation that will have to occur in the future to pay off the debt. Of course, this will mean that those who have lent money to the government will lose their investment but to that the libertarian reply should be a great, “who cares?!”. Why should people lending money to a criminal organization, the state, be compensated at all for their investment? It was an evil investment in an evil institution.

3. It Creates Greater Anti-State-Elite Sentiment

If the government decides to cover the deficit by either printing money or by borrowing, there is room for libertarians to point to the benefits that this undoubtedly creates for the state elite and the burdens that must be borne by the every-man. In the case of inflation via money creation, the central bank creates a redistribution of wealth from late-dollar-recipients to early-dollar-recipients. This is because those who receive new dollars first will be able to purchase assets before the price information is properly spread throughout the market leading to inflated prices. Those who use new dollars today will buy in pre-inflationary markets and those who use the dollars in the future will buy in post-inflationary markets. How quickly the markets adjust to the increased money supply depends on the velocity of money. Who are the early-dollar-recipients? The Federal Reserve and the charter banks which do business with the Fed. And the late-dollar-recipients? Mostly salary workers who will not receive their pay after the dollars have already moved through the economy and inflated prices. As long as this is pointed out by libertarians, this can stir up anti-state-elite sentiment: Why should the every-man pay for the big bankers!?

If the deficit is paid for via borrowing we can see a similar winner in the elite and a loser in the every-man. As (in)famously claimed by Paul Krugman about the public debt, “we owe it to ourselves”. Krugman means to point out that funding government spending today by borrowing does not mean that we are living today at the expense of tomorrow since government bond holders will also be Americans and the interest and principal that we repay to them will stay with the American people. (Robert Murphy has actually shown that is possible but not necessary that we do, in fact, live today at the expense of tomorrow.) But who is “ourselves” in this case? It is simply those who have lent money to the American government. When the government repays the loans it will be the children and grandchildren of those lenders. The every-man, again, does not have the money to safely put their money away for years with the government in order to make his children richer in the future. This benefits the rich who can afford to buy government bonds whose interest is paid via taxation. Once again, we can see the clear distinction between us, the every-man, and the state elite who profit from government borrowing.


I have no doubt that those who attack tax cuts without accompanied government spending cuts have good reason to think that this will lead to other taxes, inflation, or government borrowing in the future. Regardless, there are many reasons that the libertarian should welcome any reduction in taxes including the payroll tax holiday presented to us by President Trump. In the words of Murray Rothbard, “The principle should be clear: to support all reductions in taxes, whether they be by lower rates or widening of exemption and deductions; and to oppose all rate increases or ex­emption decreases. In short, to seek in every instance to remove the blight of taxation as much as possible.”

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