Saturday, April 18, 2009

Understanding the Tea Parties

So what are the tea parties about. One answer is to say that they are about taxes, but that's not specific enough. I think what they are about is future taxes.

Taxed Enough Already was a popular sign. Note that the phrase is about what people expect to happen to taxes. Indeed, until the recent increase in cigarette taxes, tax rates at the federal level haven't increased in 15 years. (The earnings ceiling on payroll taxes has gone up, every year.) State and local government taxes have gone up, and rather substantially in some places.

What has significantly increased is government spending. As Milton Friedman noted, "The government can get the money in only three ways: increased taxes; borrowing from the public (future taxes); creating new money (inflation)." Since we aren't paying for the spending in current taxes, and no one wants high inflation, that only leaves future taxes (borrowing from the public).

What the tea party protesters are objecting to is the unprecedented increase in future taxes (a.k.a. deficits) that the new administration is planning. While people may not articulate this specifically, they do understand it at an intuitive level. There were lots of kids at the Phoenix Tea Party, and most of the signs related to their future tax burden.

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