Quote:
Originally posted by Mmmm, Burger (C.J.)
I still don't see you explaining what deficits have to do with this. If cutting taxes would increase growth, why not do it when we're running a surplus too?
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Well under Keynsian theory you should run deficits when you are in a recession. Increase spending and cut taxes. Then when you are in a surplus you should raise taxes to pay off the debt. If you don't pay off the debt the long term debt will crowd out investment reducing your overall growth. Under Keynsian theory long term debt is bad because it crowds out investment. So in a boom, raise taxes, in a bust cut taxes and raise spending.
But Laffer did not think that Deficits were that big a deal. So under his theory you just keep cutting taxes until you reach t* because in the long run that will give you the most growth and the most revenue. I agree that in certain circumstances cutting taxes increases revenue, but I think Laffer and the other Supply Siders take deficits too lightly. I think high deficits hamper growth.
