Taxes as an investment concept: funding public goods versus tax reduction

I've been meaning to write about tax policy because there has been a fair amount of writing about the 2017 tax cuts, and the benefits mostly being directed to corporations and the extremely wealthy, and the purported big rise in economic growth that proponents said would come about because the changes hasn't happened.

-- "A New Congressional Study Finds Little Economic Benefit From 2017 Tax Cuts," Tax Policy Center

A big thread in neoliberal policy is reducing the size of government, privatizing government functions, and reducing taxes.

At the same time, the counter argument is that collective action and providing public goods requires a reasonable rate of taxation, and that lower taxation comes at the cost of investing in infrastructure and other public goods.

1. One example that comes to mind to me is how Norway and the UK took oppositional actions in response to the new revenues they received from oil production in the North Sea.

Norway didn't cut taxes, and retained ownership of the resource, directing royalty revenues to a state investment corporation, which has invested in various projects, increasing the return on investment in multiple ways.

The UK used the new revenues to justify tax cuts for the wealthy, did not retain ownership interests in the resource, and reduced corporate tax rates as well.  And while it isn't the only reason that the UK is seriously challenged financially and lacks the money to invest in revitalization and other government functions, it is a good example of how short term thinking has deleterious consequences in the long term.

-- "Did the U.K. Miss Out on £400 Billion Worth of Oil Revenue? ," Resource Extraction
-- "Why UK's oil and gas revenues are dwarfed by Norway's," Business for Scotland

2.  I have been thinking about the tax cuts issue in terms of positive return on investment.  There is a lot of discussion about how the US is running higher deficits, even though the economy is growing relatively well, because of the tax cuts, and how this is counter to general expectation, but also bad policy and bad practice.  That today's deficits are being financed by future generations.

-- "Robert J. Samuelson: Trump's fantasy budget worsens deficit"  (Washington Post syndicated columnist)
-- "Robert J. Samuelson: Shrink the budget deficit? Not a vote-getter"

There's no need to have a discussion here about Keynesian fiscal theory, recessions, counter-cyclical spending, etc.

A simpler way to think about might be, does your deficit financing "today" increase return on investment in the future or not?  If deficits don't or aren't intended to increase overall return on investment, it's bad policy and shouldn't be countenanced.

3.  Of course, what's happening with the federal deficit shows the hypocrisy of Republicans.  They "fight" deficits if the spending is for public good projects like infrastructure, or various federal programs generally as a matter of course, but not if it is for tax cuts for the wealthy.

-- "The Republicans Are Deficit Hypocrites. The Democrats Should Be Too," New Republic
-- "Charles Lane: A country at war with itself over debt" (Washington Post syndicated columnist)

4. Alaska proposes to cut university budgets 40%.  In the vein of whether or not tax cuts add or subtract value, the proposal by Alaska's Governor to fund an increase in payments to Alaska citizens by cutting university budgets is a good example.

Similarly to how the UK has let the benefits of oil production flow away from the National Treasury, instead of enacting state income and sales taxes, Alaska uses oil revenues to pay for the cost of state government as well as an annual payment to citizens. Theoretically, the Alaska Permanent Fund is not unlike what Norway did. But Norway doesn't pay out annual payments to every Norway citizen, instead it invests the revenues.

The Governor ran on a campaign plank of increasing the payment. In the face of declining oil revenues ("No longer rich on oil, Alaska may ax money to universities. Lawmakers are 800 miles apart," USA Today), the only way to do that is to cut the budget, and universities offer an opportunity to provide a significant portion of the cuts to state government necessary to fund an increase in the payments from the Alaska Permanent Fund.

But the question is whether or not that's the best possible way to "spend" such revenues. Likely the long term investment benefit from such an action is nil.

Therefore, it's bad policy and shouldn't be countenanced.