Roundabout Cycle: Misery or Prosperity?

Everyone wishes they had more money – the rich, the poor, the government, and probably you too. I've got a plan to make it happen - for you, Uncle Sam, that rich guy on the other side of town, your mother-in-law, and your grandchildren-to-be.  It's simple and involves creating a roundabout cycle of prosperity.

The key?  Tax rate cuts - and tax revenue increases.

Here’s what’s interesting. History has proven that more money comes into the government coffers – and more money is made by the citizens - when tax rates are low – and the economy grows (see evidence via the link at the bottom of this post).

How does cutting tax rates end up boosting tax income?

It’s simple: a growing economy generates more dollars for the government than a shrinking one. And the best way to get the economy growing is to allow people to keep, spend and invest more of what they earn.

All that being said, one would think that liberals would be excited to cut taxes, especially for the rich job producers out there, so that the economy would grow like wildfire. Everyone would be better off, and Congress have even more dollars flowing through the IRS each year.

But not so.

Liberals consistently argue for higher tax rates, even though what would really help government social programs would be higher tax revenues. Particularly, they argue that we should “tax the rich” (even though the “rich” are the people who create the jobs in our country), just to make things “fair.”

Why would a liberal politician, who wants more money to spend on the "good of the people", support a policy that actually reduces the wealth of the people AND reduces the amount of money the government can spend?

That would be a good question to pose, I guess.

Instead, they opt for what I call “roundabout misery” taxation. I’m sure this isn’t their intention (liberals always have the best of intentions, but not a very good understanding of economics). It goes like this:

Step 1: Tax the “rich” so that they “pay their fair share” (the definitions of “rich” and “fair share” are known only to elite intellectuals like Barack Obama and John Kerry). An economic slowdown results – companies are compelled to move offshore to remain profitable, the rich hide their assets in non-taxable accounts and less efficient investments, lay off employees, and reduce spending, in order to pay for their new taxes. The people produce less, become less wealthy, and the government takes in less money than it could have, because less new wealth is being created by the economy.

Step 2: More people end up needing government social services because of the economic downturn.

Step 3: The government needs more money to meet these rising demands for services and the loss of revenue growth, so they again look at the “rich” and demand that they ante up – “pay their fair share,” etc.  And, to meet rising demand, they may have to cut the quality of social services along the way, to make ends meet.  And on it goes.

As an alternative, how about this “roundabout prosperity” tax plan:

Step 1: The government lowers taxes on the rich, middle class, and poor, and eliminates business taxation altogether. At the same time, the government cuts inefficient spending and reduces the growth rate of its programs.

Step 2: Companies become eager to headquarter and manufacture in the U.S. and quality jobs and new productivity flood our economy – meaning more wealth, more creation of capital, new resources, new technology, and more prosperity for everyone. The “rich” and the “poor” have more money to spend and to invest; a great cycle of wealth creation ensues.

Step 3: All this new wealth results in more dollars flowing to the Federal government, AND since people are better off, there is less need for government social programs. The government is then able to cut spending even more, and then, well, lower tax rates yet again. Or, they can increase the quality of their services to the citizens.  And on it would go.

I know, sounds like I’m dreaming, right?

John F. Kennedy got it right: “It is a paradoxical truth that tax rates are too high today and revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now.” (Speech to Economic Club of New York, December 14, 1962.)

History has proven many times over that this line of thinking is correct.

Which “roundabout cycle” does your candidate propose? 

Evidence: Proof from history – 1920s, 1960s, 1980s. (Heritage Foundation Research)

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