TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

The Wall Street Journal:

We think the larger problem with S&P, Moody’s and Fitch is that they make no distinction over how a nation balances its books—whether through tax increases or spending reductions. Like the International Monetary Fund, the raters care only about balance.

This takes too little account of the need for faster economic growth, which is the only real path out of a debt crisis. Britain’s government has earned rater approval for its fiscal consolidation, but its increases in VAT and income tax rates are hurting its tepid recovery. Letting the credit raters dictate tax increases is the road to an austerity trap.

For a family, how much income they need is determined by how much they want to spend. If they want a nice home, big television, decent car, and a yearly family vacation, then they need to make enough money each year to cover that and put away some each year for retirement. It’s relatively simple: how much money you need to make depends on how much you want to spend.

It’s an easy analogy to make for government—government, too, should make enough money each year to cover their expenditures. They need to be fiscally responsible just like every family in America. Therefore, since we’ve committed ourselves to this current level of spending, we should simply raise taxes to match it.

Good rhetoric, maybe, but government and families are not the same thing. Families make money because the heads of household are working—that is, creating value—and earning income as a result. For them, the only downside to making more money is that may mean less time with their family.

But governments do not make money, they take it from individuals and organizations to fund their operation. Taxes, of course, are necessary for government to function, but at best, taxes are a necessary evil. Taxes, then, aren’t the default answer, but the last resort—the solution when we have no other.

Even if we set aside the moral issues involved with taxation (see here for more discussion on that issue), though, there are others. Taxation inherently distorts society from where it would naturally be. The mortgage interest deduction, for example, encourages people to purchase homes rather than rent. The tax system also encourages employer-provided health insurance and discourages individual health insurance plans. Employer-provided insurance disconnects the individual from making cost decisions related to health care and thus has contributed to our rising health care costs.

There are numerous other examples as well; marginal tax rates can lead to perverse decisions related to work. That’s why, when trying to get our public finances in order, we must first consider whether our current spending programs are wise or not. If they aren’t, they should be restructured or eliminated. Then, if there is no other choice, tax increases should be considered.

Democrats are fond of saying that our current budget deficit is caused primarily by tax cuts passed by the Bush administration. That isn’t true, however—the current deficit is caused primarily by a reduction in tax revenue coupled with increased spending. Bush not only cut taxes, but happily signed an expansion of Medicare (that Democrats were all too happy with at the time), an increase in defense spending, and two wars. The issue here isn’t that he cut taxes; the issue is he cut taxes while also expanding government spending. That’s what’s irresponsible.

Moreover, the causes of our current budget deficit are not the causes of our long-term budget deficit, which is what’s really looming over us. Long-term, entitlement spending is the problem. Medicare costs, specifically, will continue to grow at a dangerous rate, and unless we get Medicare spending under control, we will go bankrupt as a nation.

The answer is not higher taxes. The answer is more responsible spending, and if we can’t get there without unacceptably harming the poor by reducing spending, then tax increases should be considered. But it isn’t the first solution. It’s the last resort.