You have heard it over and over again in the media. Taxes need to be raised. Government needs more money to do what it needs to do. All of it is frustrating. Add to it the call from some that say taxing and spending is the way to bring more prosperity to our lives. If we just raised taxes and spent more money, then all would be well and things would go better.
Such sentiments sound nice and let’s face it, government needs to do certain things, but the whole approach is just flat out wrong.
A new study has been put out by the Mercatus Center at George Mason University that sheds new light on the relationship of taxation and the economy. In the study, they came to some important conclusions based on their research.
First, they concluded that higher taxes tend to reduce economic growth. If you raise taxes by one percent, it results in a 1.9 percent decrease in growth. If you think about that in terms that we deal with today, that would mean that things like Obamacare are a drag on the economy. Since it is a tax on all of us, whether it be through buying a plan or paying the “personal responsibility fee,” it puts a significant drag on the economy. Since we saw a shrink in the economy in the first quarter of the year, that ought to chill all of us. In addition, since it is being predicted that we are going to see very modest growth for the rest of the year, that should point to one truth that you will not hear elsewhere. That would be that we could possibly be in a complete recovery had it not been for the passage of Obama’s healthcare albatross.
The second thing that the study shows is that taxes affect where people live. People have a tendency to move to states with lower taxes rather than live in states where they are higher. Making out in this kind of environment would be states like Florida, Tennessee, South Dakota, Texas and others that do not have a tax on individual income. On the flip side of that, states like California, Oregon, Iowa, Minnesota and New York draw the short straw for having a higher rate of taxes on their citizens. Indeed, we have seen efforts by Rick Perry to pry business away from other states to his own Texas based on this principle and it works all the way around.
The third thing is that progressive tax rates or rates that go up based on income tend to impact the creation of business and in turn jobs.
On the whole, that creates a conclusion that if higher taxes lead to less prosperity, then lower taxes lead to more prosperity. If you wonder about that, look no further than the example of what has happened in Indiana for the last 10 years or so and on a larger scale, the economy under the leadership of Ronald Reagan back in the 1980s.
While I know that governments can’t survive on collecting no taxes at all, I think that things would work out better for all of us if there was a general cut in taxes all the way around. Imagine the jobs created. Imagine the prosperity that we would see. Further, imagine the increased revenues among state and federal governments that believe it or not, bring in more money when there is a tax cut because people tend to spend more money if they actually have it in their hands instead of in the hands of the government.
What we continue to be told about taxes is completely wrong. It’s time to step up and do the right thing to affect job growth and a better economy. Let’s cut taxes and see if we don’t see growth that we haven’t seen since we had an actor in the White House.
(accompanying picture is from flickr user David Beyer, click here for license)