Instead, lawmakers should focus on the level of government spending. Government spending takes resources out of the productive sector of the economy regardless of whether it is financed by taxes or by borrowing. At the same time, robust economic growth will be difficult to achieve unless we also reduce the burden of taxation and fix the fundamental problems of the tax code. Reducing the burden of taxation is relatively straightforward. This approach has the advantage of being fair, since every taxpayer, by definition, is given a tax cut of equal magnitude.
Many voters wonder, however, how the government can balance the budget while cutting tax rates.
Contrary to popular belief, achieving a balanced budget in this fashion is not done with smoke and mirrors. Cutting tax rates supports higher economic growth by reducing both the cost of capital to entrepreneurs and business managers and the cost of working harder, a penalty workers pay through higher income taxes as they earn more pay. This new economic growth results in an expanding tax base, and a larger tax base produces higher than expected revenue growth which supports rather than inhibits deficit reduction. Combine the higher revenue from a strong economy with prudent, decisive spending cuts, and balancing the federal budget becomes entirely possible. Excessively high tax rates are not the only elements of today's tax system that need to be addressed.