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More Government Spending!

President Bush has signed a bill increasing the public debt limit from $7.384 trillion to $8.184 trillion. The extra $800 billion should last for about two weeks years.

The vote in the House split exactly on party lines. (The vote in the Senate isn't summarized so nicely and I don't care to do it myself.) Of course, this doesn't make me believe for an instant that Democrats are the paragons of fiscal responsibility. (It's all posturing for the next election so they can make accusations of fiscal irresponsibility. There can be no doubt about the passage of a bill like this; Democrats would have voted for it if there wasn't a Republican majority.) To the extent Democrats want to balance the budget, they want to raise taxes, not cut spending. Republicans are in no mood for spending cuts either, but to their credit at least they want to lower taxes.

That sounds odd, doesn't it? It's as if I'm less bothered by deficits than by taxes. Of course I'd be happiest with a budget that was balanced through spending cuts, but since that's even less likely than the U.N. coming clean about oil-for-food, I'll try to make do in a second-best world. And in that world, I do prefer deficits to taxes. Why?

The lower my taxes are today, the more I can afford to deposit in sundry tax-advantaged retirement accounts. As every piece of financial advice ever written says, you can easily end up with more money through small but earlier contributions vs. large but later contributions.

I'm happy to sock away a bunch of marginal dollars in retirement accounts, but then there's a hard bend in my dollar utility curve. If there's no tax advantage to waiting, I want to hold my dollars today. Do I worry about eventual higher taxes to pay for current deficits? Sure, a little. But that's a long time in the future, and it would have to pass the political barrier of a large voting demographic retiring.

I also subscribe to the belief that my own investments will yield higher than the rate on government debt, so I'd rather invest now and pay taxes later. It does bother me that inflation causes outsize capital gains, in effect subjecting my principal to taxation, but that's not a huge effect unless inflation takes off.

A more speculative reason to prefer deficits to taxes is that large deficit numbers may dissuade some politicians from embarking on new or increased spending programs. In practice, this doesn't appear to work very well.

Tiny Island