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Friday, March 27, 2009

Tax Cuts For Business .... The Right Thing To Do

Historically business has reacted positively every time across the board tax cuts have been implemented, under Kennedy, Reagan, and Bush 43. This would seem to hold true so long as we are below levels of full employment. As rates are cut, investment money is loosened up, and jobs are created via these new investments. So long as there are workers available to fill those jobs, the tax base increases, more than offsetting the tax rate decrease. The result is that revenue increases.

So the answer of course is to cut taxes to stimulate the economy. The conservative approach. It has a 100% historical success rate.

Taken to the logical conclusion, the correct plan would eliminate income tax altogether, as taxing productive behavior is stupid public policy on it's face, and switch instead to a consumption tax which punishes people for what they remove from the economy, not what they choose to add to it. If the consumption tax is a one time tax paid on end-use consumption only, ie NOT a value added tax, the result is that the ~23% embedded taxation that exists in the average price of goods and services in the US drops to the bottom line and becomes profit. In a competitive environment this excess new-found profit is shared with the consumer, up to it's full 23% in the form of competitive price wars. Prices drop. Profit increases or remains the same. US companies become dramatically more competitive in a worldwide environment, and that whooshing sound you hear is investment dollars rushing back into the market to take advantage.

It's amazing the kind of economic engine we could have if we simply stopped using taxes to satisfy our envy, buy votes, and punish productive workers. But as long as it's about "fairness", we'll lumber along being much less than we can be.

If the real end state at all of this is to stimulate the economy and restore jobs - a significant cut (even a tax holiday for several months) in business taxes seems a no-brainer.

If taxes are cut for the right groups, everyone will benefit. Cut taxes for the consumer class and they will buy more of the producer's products. Simple.

What really happened was that Congress used the recession as an opportunity to fund their agenda - hoping that economic stimulous would also result.

I fear the true outcome is that they've p%^&*d away billions and billions, have little job creation to show for it, but have funded a legacy of social programs it will be hard to undo.

I think President Obama has made it clear, he believes that many people have not been paying their "fair" share and he's going to do something about it. Higher taxes, whether through an expiration of existing rates or new taxes, either direct taxation or increased regulatory costs, will cost everyone in this country. A bad plan at a bad time....

2 comments:

Reg Charie said...

There is an error in logic in the article.

If you read "As rates are cut, investment money is loosened up, and jobs are created via these new investments. So long as there are workers available to fill those jobs, the tax base increases, more than offsetting the tax rate decrease. The result is that revenue increases.", this presupposes that the amount of incoming new worker's taxes will more than offset the amount cut.

Then they say, "Taken to the logical conclusion, the correct plan would eliminate income tax altogether,.."

If you eliminated taxes then incoming workers would not be contributing anything and a total loss of revenue would result.


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Glenn said...

Actually, Reg, the error in logic is in your comment. He stated a logical case to end income tax and replace it with a consumption tax. He did not advocate the elimination of taxation in totality, and his conclusion is logical.