When the fuel runs low, they don’t shut down the machine, they just search for new sources of fuel, and that is when we get new taxes or our existing taxes get raised.  In fact, right now, several candidates for President and their supporters in Congress are proposing tax increases to pay for not just today’s spending, but for future spending as well.  You see they have big ideas and those big ideas need money before we can prove them absurd.  Now, the purpose of this column is not to get them to stop spending.  That could never happen.  The purpose of this column is to show them a better way to increase tax revenue.

Before we get into it, let’s take a look at just some of the taxes that Congress (both U.S. and State) forces upon us:

• Federal Personal Income Tax

• State and Local Income Taxes

• Sales Tax

• Social Security Tax

• Medicare Tax

• Federal Corporate Income Tax Share

• Property Tax

• Fuel/Gasoline Tax

• Estate Tax

• Captial Gains Tax

• Federal Unemployment Tax

• State Unemployment Tax

• Telephone Federal Universal Service Fee Tax

• Telephone Federal Excise Tax

• Telephone Federal, State, and Local Surcharge Taxes

• Telephone Minimum Usage Surcharge Tax

• Telephone Recurring and Non-Recurring Charges Tax

• Telephone State and Local Tax

• Telephone Usage Charge Tax

• Worker’s Compensation Tax

• Utility Tax

• School Tax

• Vehicle Sales Tax

• Vehicle Excise Tax

• Liquor Tax

• Food License Tax

• Marriage License Tax

• CDL License Tax

• Building Permit Tax

• Fishing License Tax

• Hunting License Tax

• Septic Permit Tax

• Vehicle Registration Tax

• Well Permit Tax

• Watercraft Registration Tax

• Road Toll Booth Tax

• Toll Bridge Taxes

• Toll Tunnel Taxes

Wow.  They certainly are creative.  But if collecting more tax revenue is their goal, raising taxes or creating new taxes isn’t the most efficient method.  You see it has been proven, time and again, that by lowering and eliminating taxes, they can actually increase the amount of tax revenue to federal government.   Economist Arthur Laffer presented this concept graphically below.






Economist Arthur Laffer presented this concept graphically.   The Laffer Curve shows us that there is an optimum level of taxation.  What this means is that lower taxes can lead to more tax revenue.  In other words, when the tax rate is zero, there are zero dollars of tax revenue.  However, when the tax rate is 100%, there are also zero dollars of tax revenue.  This is because people will not work if 100% of their earned money is taken.  So, when taxes are too high, it impacts work, output, and employment to such an extant that there would be more tax revenue with lower taxes.  Think about it, when people have more of their hard earned money, they buy things, invest, or/and start a business (to keep it simple).  These activities have the potential to make them more money or create jobs that earn others more money.  When there is more money being earned and created, there is more income being taxed and therefore, more tax revenue for the government.

Okay, so you want some proof.  Let’s look at President Reagan’s Tax Cuts of the early 1980’s.  President Reagan slashed Income Tax Rates 25% across the board and the Capital Gains Tax 8%.  Prior to the tax cut, the economy was suffering from high inflation, high interest rates, and high unemployment.  All three dropped sharply after the cuts.  The cuts provided more incentive to work, produce and invest.  Not only did the economy jump from a growth rate of .9% to 4.8%, but tax revenues to the federal government jumped from declining 2.8% per year to increasing 3.5% annually.  In fact, from 1981-1988, the income tax rate that top earning Americans paid dropped from 70% to 28% and during this time, their taxes paid to the federal government actually increased.  If you look at the Harding-Coolidge Tax Cuts from the 1920s and the Kennedy Tax Cuts from the 1960s, you will see similar results.

So there you have it.  The next time, our elected representatives float the idea of raising taxes to pay for their mistakes, we need to tell them loud and clear that they need to cut taxes to pay for their mistakes.  It’s a win-win.  They get to keep spending, and we get to pay less taxes.  I’ll leave you with one last example: President Bush cut taxes in 2001, since then, we’ve seen record low unemployment, record low inflation, a healthy expanding economy, and record high tax revenues to the federal government.


 
...more columns by Todd A. Carges