Taxes

Less taxes collected by government, mathematically works out to more income for workers and their families. More money for us means more money spent on products and services. That translates into more jobs. More jobs start the cycle of more money for workers and families again. In other words, there is a positive multiplier effect. We saw this with the Kennedy tax cuts of the 1960s, the Reagan tax cuts in the 1980s and we saw it again with the Bush tax cuts of the last decade despite inheriting a recession and the financial impacts of 9/11.

Despite Katrina and Rita hurricanes that destroyed whole cities, despite the very expensive war on terror, the U.S. economy has been humming along at 3 to 3.5% growth rates for a long time. (Refer to my explanation of the Business Cycle- for an understanding of why this growth rate cannot stay constant forever and is in fact, currently stalling, but will be temporary).

When taxes are raised, we all have less money to spend, which means less products bought, and therefore fewer workers needed. The unemployment rate goes up and the cycle starts again. That’s right, increased taxes is a negative drag to the economy and it too has a multiplier effect. Don’t believe me, then look at the Western European countries with high tax rates and their double digit unemployment and stagnant economic growth.

Now look at the Eastern European countries plus England, who have cut their taxes to low rates and are surging economically. Need more proof. Look at the Great Depression of the 1930s. Governments tried to fix a recession by raising taxes to balance the budget and imposing trade restrictions. What happened? Greater taxes reduced spending and capital for investment, feeding the negative multiplier effect of these type of actions. Trade restrictions, adopted wholesale and at the same time by many countries including America to ‘protect’ domestic jobs instead destroyed immediately the domestic jobs dedicated to exports for all those nations. No jobs were gained from other nations because the domestic capital to create those industries “helped by the trade barriers” did not exist anymore.

Also, if there were capital available, it would take years to build the infrastructure (without any money coming in during construction) before the first job in that industry could be gained. Even if this could have happened (which it didn’t), all of us would have paid higher prices for those products and services, meaning we would have less money to spend on other products and services. Those people in the other fields where that money would have been spent would have lost their jobs and that would have again steam rolled another negative multiplier effect on the economy.

The Impact of Tax Cuts on Government Revenues:

We’ve all seen the statement that “Tax cuts reduce government revenues and increase budget deficits” –The Big Lie! That statement, in my opinion, is one of the worst, bald faced, self serving lies, perpetrated by the Democratic Party, that has ever been presented to the American public. It sounds logical which is why they use it, but the facts don’t support it. Facts are ultimately what matters. If you only look at the annual change in tax revenues after an income tax cut has occurred, you will see tremendous, often double digit growth in tax revenues collected by the government that continues for years. The extra revenue is generated due to job and income growth that occurs as a direct result of the tax cuts.

Then why, you ask, do federal budget deficits often increase after taxes have been cut? It’s simple. Now look at government spending after a tax cut. Amazingly, it too increases at tremendous rates, even greater than the rate of those big tax revenue increases. That’s the long and short of it. To make matters worse, at the state and local levels, whenever the ‘good times’ bring in revenue increases, instead of returning the surplus to the taxpayers or saving it for a ‘rainy day’, they too increase spending. Inevitably, (may be a few years in the future), the economy slows (see my piece on the business cycle), and federal, state, and local governments start to see large deficits with no easy solutions in sight. Our politicians, whether Democrats or Republicans, have demonstrated an insatiable appetite for government spending. They want to present to us ‘locals’ who elect them the ‘government goodies’ they ‘got for us’ as a reason to reelect them. Seemingly that works well because incumbents are generally hard to defeat in an election.

The second big lie also perpetrated by the Democratic party who truly covet spending the money you and I earn is the labeling of current, planned annual spending increases as spending ‘cuts’ because two or more years ago, the plan was to spend even more. To give some analogies, could a big corporation who increases spending from $100 million dollars last year to $105 million this year, state that they cut spending because two years ago they actually planned to spend $110 million? Of course not!

Also, if you are earning $30,000 a year and you were hoping for a $2,000 raise, but only received a $1,000 raise, would you think that your wages were cut? Of course not! However, according to the Democrats, those would be cuts. It’s just plain stupid and an insult to our intelligence to label spending increases over the previous year as spending cuts. Tell you the truth, the federal government needs to have some years in which spending actually is less than the previous year. You’d be surprised at how fast deficits would shrink and then grow to surpluses. Companies in financial trouble do this all the time. Why can’t the government, when in a financial mess, exercise the same discipline?