The Unfunded Tax Cut Oxymoron

What in Sam Hill is an “unfunded tax cut”? We ask because Rishi Sunak’s accession to prime minister of Britain marks the mightiness of the pen over the sword. It was the phrase “unfunded tax cuts” that toppled the new Tory leader, Elizabeth “Liz” Truss, and hefted Mr. Sunak to power. So what is it with the “unfunded tax cut”? It turns out that its etymology traces to a long line of leftist assassins trained in the linguistic dark arts.“Unfunded” used to refer to a spending mandate that lacked an identified source of taxpayer revenue to pay for it. It was a simple, even quaint concept. No less a simpleton than President Reagan brought the formulation to popular attention. He spent part of the first year of his presidency explaining that the Social Security system “faced an unfunded liability of several trillion dollars.” Everybody knew what he meant. In 1994, Republicans rose to power in the House via their Contract With America, which vowed to eliminate “unfunded mandates” for spending. The year saw Treasury Secretary Lloyd Bentsen blame the budget deficit on Republicans. He altered the lingo, though, referring to a “hair-of-the-dog approach, another round of unfunded tax cuts.” Bingo. It began. It might have “felt good,” Brother Bentsen oozed, but it caused a “hangover.”In 1996, another left-winger, the Financial Times, griped that Reagan’s “unfunded tax cuts” led “to a ballooning in the budget deficit.” From there, it was off to the races. By 2004 President George W. Bush’s most clear-headed economic adviser, Gregory Mankiw, was explaining the absence of logic behind the idea of “unfunded tax cuts” — a term, he tells the Sun, that the Democrats deployed against the Bush tax cuts in 2001 and 2003.Soon “unfunded tax cuts” made a trans-Atlantic migration and the phrase was picked up by Britain’s Labor party. In 2006, the dour chancellor of the exchequer, Gordon Brown, who would soon take over as prime minister from Tony Blair, penned an op-ed for the FT observing that “no political party” would “be trusted if it promises stability in one breath and unfunded tax cuts in the next.”Mr. Brown certainly made a career of his hostility to tax cuts, pushing through a hike in Britain’s top income tax rate to 50 percent from the 40 percent rate set by Prime Minister Thatcher. Ms. Truss’ attempt, as part of a pro-growth, supply-side economic plan, to revert to the lower rate — which had prevailed from 1989 until 2009 — is what triggered the outcry among what she aptly called the “anti-growth coalition.”Meantime in America, the oxymoron of the unfunded tax cuts was taken up by Ezra Klein, who in 2009 eulogized Senator Kennedy for his long campaign against President Bush’s “unfunded tax cuts.” The New York Times’ Nobel laureate, Paul Krugman, swanned in on this head in 2010, going on to devote columns, blog posts, and even a Reddit interview to embroidering on the GOP’s “consistent pursuit” of “huge unfunded tax cuts.”Which brings us back to the question — what is an unfunded tax cut? “There’s no such thing as unfunded tax cuts,” declared the Telegraph’s financial columnist, Matthew Lynn, as Ms. Truss’ ministry was imploding, “it’s our money.” Mr. Lynn contends that “It is state spending that needs to be ‘funded’, and not its opposite.” He, too, is struck by the power of this phrase and the phenomenon that “three simple words” could be so “lethal.”Mr. Lynn dismisses the caviling by the “anti-growth” left as “Tosh.” He says “tax cuts don’t need to be funded, for the same reason that staying home instead of going out to dinner doesn’t need to be ‘funded.”’ The idea of “unfunded” tax cuts reflects the leftist view that the economy belongs to the government. Yet as Mr. Lynn explains, a tax cut — “funded” or not — “isn’t spending. It is simply taking less of your citizens’ money.”

The Unfunded Tax Cut Oxymoron

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