Ron Paul Warns Tax Reform is Useless Without Spending Reform

Recently, Republican leaders in Congress unveiled a "tax reform" plan that they claimed would provide the American people with a simpler, fairer, and more efficient tax system. While this plan does lower some tax rates and contains some other changes that may make next April a little less painful for Americans, there is little in it to excite supporters of liberty.

Taxes may even increase under this plan for some Americans, as it eliminates some of those tax deductions labeled “loopholes.” When I served in Congress I opposed bills that “closed loopholes” because closing loopholes is just a fancy way of saying raising taxes. Anything that leaves more money in the hands of the people is beneficial to both liberty and economic efficiency. As economist Thomas DiLorenzo put it, "...private individuals always spend their own money more efficiently than government bureaucrats do,” therefore sound economics, as well as a concern for liberty, requires opposition to any proposal to "let government bureaucrats spend more of the people's hard-earned money.”

Tax reformers also stray from sound economics when they endorse a tax system that is designed to direct consumption and savings. I share the concern that the current tax system distorts people’s behavior by discouraging savings. However, the solution is not for the government to create a tax code that punishes consumption in order to encourage savings. A truly efficient market is one where individuals are completely free to determine how to allocate their incomes between consumption and savings. No politician or bureaucrat can know the proper allocation of savings and investment that meets the needs of every individual, and government policies designed to cause individuals to devote more of their income to savings than they otherwise would distorts the market just as much as policies that encourage excess consumption.

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