Tax cuts won't stimulate the economy

Our friends at the Center on Budget and Policy Priorities routinely put out great research that adds context to debates over policy and the economy. They did it again with a report issued yesterday demonstrating, as the title says, "States Cannot Stimulate Their Economies by Cutting Taxes."

The point the authors make might not be intuitive, but it's very simple. First, it's true that tax cuts can in some cases create jobs by stimulating demand for goods and services. That's the argument many have used to advocate for tax cuts, and several have been proposed in Colorado during the current session of the state Legislature.

If only creating jobs were so simple. The trouble is Colorado's state government must have a balanced budget. Deficit spending is illegal. That means any tax cuts must result in reduced spending somewhere in the government's budget. The result of reduced spending is often layoffs of people like teachers, firefighters or government office workers. In other words, fewer jobs. Cuts to government services such as child-care assistance can also result in people losing their jobs.

So while tax cuts can boost the economy for some, they can simultaneously hurt the economy for someone else.