Can we as Republicans advocate both cutting taxes and reducing the deficit? This is a question that has troubled conservatives for some time, and has even pitted us against each other in our well-meaning quest for fiscal responsibility. The charge levelled against those who want to cut taxes is that they will increase the deficit.

Art Laffer, economic advisor to Reagan, thought he had stumbled upon the answer in his famous "Laffer Curve," pointing out that if taxes are 0%, the government will have no revenue, and if taxes are 100%, there will be no incentive for citizens to work and therefore government will have no revenue. The implication is that somewhere in between 0% and 100%, there is a level of taxation that is optimal for maximizing government revenue. However, the questions left unanswered are A). where that optimal point is, B). how to know if we're under or over that optimal point, and C). whether "maximized government revenue" is the be-all end-all of a healthy economy.

The real key to deciphering the tax-cutting vs. deficit-hawk dichotomy was given by Milton Friedman, when he explained that government spending is the level of taxation.

We often think of taxation as merely income taxes, sales taxes, payroll taxes, etc.--actual, nominal money transfers that involve citizens sending physical money to the IRS. However, one must understand that the essence of taxation is really "transfer of purchasing power." Therefore, there are other types of taxes than "regular taxes." The two main other types of taxation are borrowing (debt), and money creation (inflation).

When new money is printed, the purchasing power of all the old dollars in existence is sapped in order to infuse purchasing power into the newly created dollars. This is, in essence, a transfer of purchasing power from the people to the government, or whoever the government gives the new money to. When the government prints up new money to pay for its expenditures, the people are taxed of their wealth just as they are when they pay "regular taxes."

When the government borrows money and takes on debt, this debt must be payed off in the future (plus interest) either through regular taxes or through more inflation.  Moreover, as the government borrows money, there is less money left over for private investors to borrow, and so, even in the immediate present, we suffer the consequences of lowered business investment as a result of government borrowing.

All government spending must be paid for through regular taxes, borrowing, or inflation. Therefore, the real level of taxation is equal to total government spending.

When conservatives advocate cuts in regular taxes, they are not in reality advocating cuts in the level of purchasing power that is transferred from private citizens to government. When an indebted government cuts regular taxes, it merely means that the government has to pay for a larger share of the debt with borrowing and inflation. It merely alters the makeup of the government's taxation structure. However, it can be argued that increasing regular tax rates is not a mere alteration of the makeup of the taxation structure, since it simply gives the politicians more money to spend. Increasing regular tax rates is only a cosmetic alteration of the country's taxation structure if politicians use the increased tax revenue to actually pay off debt.

But when conservatives advocate spending cuts, they are simultaneously advocating tax cuts, because even if regular taxes are not cut, lowered government spending means less borrowing and inflation are necessary.

Conservatives need to understand that cutting government spending is synonymous with cutting taxes. They are the same thing. By cutting government spending, we can leave more purchasing power in private hands and stop deficit growth, at the same time. There is no conflict between the two.