It’s the Spending, Stupid

Taxes, taxes, taxes.  All we hear about are taxes.  Yes, taxes are too high.  Let’s dispatch this issue once and for all.

First, keeping more of what you rightfully earn is always a good thing.  Always.  The assertion that lowering taxes hurts the economy and therefore society at large is absurd.  If people can keep more of what they earn, they will be able to make more choices for themselves, live more comfortably, and take more responsibility for their families.

Second, when a business pays less in taxes, they are able to reinvest money in new equipment, hire more people, grant pay raises, lower prices and all manner of growth inducing activities.  The converse is that if businesses face a higher tax burden, they will increase retail prices, lay off employees, lower wages, or some combination of these.

These are indisputable facts.  Now on to the second half of the problem…

Spending.

Liberals, leftists and statists of all stripes love to look at Reagan, Bush, or any president who lowered taxes and say, “…yeah, but the deficit grew!”  These people always point to lower taxes as the reason for the deficits.  They never want to talk about spending.

According to the Heritage Foundation:

Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

So clearly, lower taxes are not the problem with government.

Government is the problem.

Just think what could have been if budgets were cut during the Reagan years.  It doesn’t matter who the president was; imagine if budgets were cut – I mean actually reduced in real inflation adjusted dollars.

We can argue whether or not Reagan’s defense spending toppled the Soviet Union.  We can argue about whether or not Bush spending increases across the board did any good.  We can even argue about whether or not Obama’s Trillion dollar bail out did a darn thing.

What we can’t argue about is that lower taxes have historically increased tax revenue.

It is the power hungry bureaucrats in Congress and the megalomaniacal presidents, who have constantly approved increases in the size and scope of government that has caused our national economic woes.

Since we have so much data to work from, the way forward seems clear to me. Lower taxes AND cut spending.

How about this: everybody pays 15% on everything they earn, with no deductions.  Spending can never exceed, say 10% of GDP.

First, the tax code would fit on a post it note. But beyond that, imagine what would happen when the American people are unleashed from the tether of statism and allowed to thrive.

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