We should revise our abominable tax code in a way that is less destructive to the economy. In particular, taxes should not: discourage hard work and risk taking, impede capital formation, impose high costs for computation and enforcement, favor particular groups or activities, or intrude on individual liberty any more than is absolutely necessary. Given these preconditions, I believe a national sales tax would be ideal. If Congress insists on taxing income, then a flat tax (whereby all taxpayers pay the same rate with no special deductions or credits for politically favored expenses) would be best. Unfortunately, we are stuck with the most harmful system of all: a complex, progressive income tax, with lots of politically motivated loopholes, deductions, and credits, that encourages a raft of unproductive activities, and supports an entire class of unneeded service providers to calculate.

By failing to address the spending side of the equation, neither the Democrats’ nor the Republicans’ current proposals will provide any genuine stimulus. The President’s version will temporarily increase the purchasing power of the middle class, but the gains will come at the price of larger deficits, bringing larger tax increases down the road. By bringing down savings, which President Obama ironically touts as a benefit, the plan will diminish private investment, thereby slowing job growth.

While the Republicans’ distaste for high taxes is admirable, they fail to see how increased borrowing or printing is worse. Unfortunately, after having been in the majority for twelve years with nothing to show on the cost-cutting side, those Republicans who do advocate for fiscal prudence have little credibility with the voters. Without corresponding cuts in spending, the full benefits of lower taxes – particularly as they apply to the rich – will never be realized. In the current environment, extra savings accumulated by the rich are largely “invested” in government securities rather than private sector ventures. Throwing more money into a government abyss can’t help economic growth.

Rather than trying to disguise another misguided round of stimulus in the cloak of a tax cut, we should deliver what the economy really needs – genuinely smaller government. However, to accomplish this, we need leaders who not only understand economics but have the political will to level with the American people about how much government we can really afford.