Tax Cuts Do Not Cause Reductions In Federal Income -- They Increase Revenue

In order to put people back to work, Donald Trump has proposed legislation that would drastically cut taxes for both individuals and businesses. But democrats, and some republicans too, say this might backfire as it will also reduce income to the Federal government. Where did this rumor that increasing taxes increases Federal revenue come from anyway? It's a fallacy.

Rush Limbaugh gives a perfect example of how lowering taxes generates more government revenue thatn tax increases. He said,

"If it’s hard to understand lowering tax rates and increasing revenue, let me ask you this. Have you ever seen a store put things on sale? Obviously you have. Why do they do it? Why do they lower the cost of certain things to entice you to come in and buy them? Well, because they’ll sell more of it. The lower the price of an item, the more likely people are to buy it, and the more people that buy it, the more are sold, by lowering the price. When airlines are feeling the heat of competition, what do they do? They lower fares. If one airline lowers ’em, they all have to on the same routes. Or they’ll throw you off, right, or kill your rabbit, but don’t confuse me here.

On a government-run transportation system, what happens? When the Port Authority of New York and New Jersey is in a crunch and it’s not collecting enough money, what do they do? They stupidly raise fares. They do not try to get more people riding; they rip off the people who still are by charging them more. Does it ever work? Why don’t they reduce fares? Why don’t they lower the price of going across a bridge or getting on the subway? They never do. Well, I can’t say never. But you know as well as I do that mostly those costs increase. When a business raises the price of an item that you’re used to paying X for, are you more likely to go out and buy it again, or less likely, maybe look for someplace else to get something like it, something close to it? 

Look, this is simple math. It’s not even arguable. The Democrats have so corrupted our understanding of economics and productivity that lowering tax rates is now considered to be some kind of sop to the rich. I mean, it’s just profound to me, the damage inflicted on this country by the Democrats in their pursuit of perpetual power.

So true.

References and further reading:

• Rush Limbaugh: Democrats Know That Tax Cuts Increase Revenue, So Why Do They Lie About the Facts?
• The Washington Post: White House unveils dramatic plan to overhaul tax code in major test for Trump

Why do tax hikes hurt economies?

So government spending increases to pay for entitlement programs, and eventually taxes will be raised in order to pay for these programs. The problem with tax hikes is, that while revenues increase initially, in the long term governmental revenues decline. Why?

Well, it's quite simple actually. When taxes get up to 50, 60, or 70 percent, such as they were in 1920 after WWI, and the late fortys after the FDR spending spree, people start to find ways to get around paying taxes.

First of all, we must say here that some taxes are necessary for maintaining infrastructure, such as building and maintaining roads, bridges and tunels, and for building government buildings, and providing for national security. In order to pay for these things taxes are necessary.

Yet when the government starts to create programs to help people, taxes usually go up in order to pay for all these programs. According to the Laffer curve, as taxes are raised to a certain point governmental revenue increases. But once that certain point is reached (say it's 40%), then people start to find ways to get around paying them.

Henry Hazlitt, in his book "Economics in One Lesson, describes how people get around paying taxes.

1. Working less. Why work two jobs when all that's going to cause me to move into a higher tax bracket, forcing me to work eight months of the year making money for the government.

2. Spending less. If they are going to take half the money I make, then I'm going to put it in a bank and save rather than purchase material items, such as new TVs, iphones, vacations, etc.

4. Less risk taking. If they lose all their money when they lose, and get to keep only 30, 40, or 50% of what they make when they win, they decide that it is foolish to take risks with their capital. Making matters worse here is that capital available for risk taking decreases due to high taxes.

Since people with money are spending less, this creates less capital for those who create jobs. With less capital, and with less risk taking, this means fewer jobs created. In other words, "the government spenders create the very problem of unemployment that they profess to solve."

Only the facts point to the truth

There are those who say you can find an article online to support just about any argument.  But I would like to disagree with this on the grounds that the facts only support one side.

Surely you can find an opinion peace supporting any argument, but the truth is only on one side.  For instance, let's consider tax increases.  You will find articles supporting the notion that tax increases result in more government revenue.  They will argue: it just makes sense.

But there are others who argue that tax cuts create more governmental revenue. They will cite the Laffer Curve as evidence that if you raise taxes above a certain point revenue starts to decline.  In such instances, if you cut taxes so they are at or below this point, you will assure a steady inflow of tax revenue.

The supporters of this later theory will also be able to cite historical evidence in support of this theory, as Warren G. Harding/ Calvin Coolidge cut taxes and watched as the economy soared.  John F. Kennedy, Ronald Reagan, and George W. Bush cut taxes and saw governmental revenue nearly double in all instances.

So the evidence is only on one side.  Surely both sides will cite evidence, but just that it sounds good is not sound evidence.

The vicious cycle of spending and taxing

Okay, so we have people in this country, and just about every other country too, who think the role of government is to solve problems. So they see a problem -- poverty, for example -- and they create government programs -- welfare, food stamps, unemployment -- to solve those problems.

As noted by the great economist Henry Hazlitt in his 1946 book "Economics in One Lesson:

"There is NO more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemploiyhment? That is obviously due to 'insufficient private purchasing power.' The remedy is just as obvious. All that is necesary is for the government to spend enough to make up the 'deviciancy.'

Now, this all sounds all fine and dandy. It makes the politicians who create these programs feel good because they are creating a charity, and it makes the people feel good about the politician because they are helping those in need. Yet what goes unnoticed here is that for every dollar the government spends to implement and manage these programs a dollar has to be taken via taxes from the people.

"Everything we get, outside of the free gifts of nature, must in some way be paid for," said Hazlitt.

He explains that there are certain necessary functions that must be performed by government, and in order to pay for them a certain amount of taxes must be collected. Such necessary functions include

1. Building and maintaining roads and bridges and tunnels
2. Armories and navy yards to protect us
3. Buildings to house legislatures
4. Police departments
5. Fire departments
6. Coast guards

Hazlitt uses the example of a $10 million bridge being built by the government to create jobs. People can see the bridge, and they can see that it is beging used to allow cars to cross over water. They can see the 500 people working on it, peple they think would not be working if not for the building of the bridge. This is all good, they think.

However, what is not seen is that this means that $10 million in taxes has to be collected. He said:

"They would have that much taken away from them which they would otherwise have spent on the things they needed most... Therefore, for every public job has been destoryed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. Mor bridge builders; fewer automobile workers, television technicians, clothing workers, farmers."

Of course another argument is that, while people can see the bridge, they do not see all the projects that are not done because money was diverted from the people to the government. He said:

"Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But ifthey have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many peple have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others."

The same can be said of all other government programs. We see that we are helping the unemployed, but we don't see that the same tax dollars that are taken to feed the unemployed are taken from the businessman, who in turn has to lay off a worker, or not hire a worker, because he has less money due to the taxes.

So, in other words, taxation to help the unemployed or impoverished destroys as many jobs as it creates. It also results in unbuilt houses, unbought wedding rings, unmade refrigerators, unbought refrigerators.

Making this worse is that a viscious cycle develops, where once you create these programs no polician wants to be the one to tell the people these programs are going to be cut. Even if the programs are no longer self sufficient, they are never ended. In order to keep them afloat even more taxes have to be collected.

Making this even worse, is that hundreds if not thousands of people are employed to manage these programs, and they will fight tooth and nail not to lose their jobs. Likewise, those who are receiving the money don't want to lose their checks, or their government provided food or home, and so they vote for whomever champions for continuing the program. It's a viscious cycle.

Spending equals taxes. Taxes basically you are taking from those who create wealth and giving it to those who don't. So those who own businesses, instead of giving raises or creating new jobs, they must not give raises and not create new jobs, and sometimes lay off workers and add to the unemployment problem. They have to do this all because of taxes.

And so as fewer people are working, government officials create new programs, and to pay for these new programs they have to raise taxes. And once taxes get too high -- say 50, 60 or 70 percent -- then people quit spending their money, and so even fewer products are consumed, and fewer jobs are created, and the unemployment number goes up even higher.

It's okay to be the party of no

There's an old saying that "it is better to do nothing than to do something stupid and unproven.  A government that heeds this advice would be far more likely to be successful than one that responds to all the whims and wishes of modern society.

Too many times we hear people see a problem and say, "We have to do something!"  It's good to search for solutions, but it's not good when these solutions are based on emotion as opposed to hard core facts.

Most U.S. Presidents before Woodrow Wilson had a Laissez-faire, or hands-off approach to government.  They basically stood on the sidelines and acted only when necessary.  Yet that all changed with Woodrow Wilson.

In fact, I believe it was Grover Cleveland (correct me if it was a different president) who was presented with a bill by Congress that would give increase taxes and donate $10,000 to states ravaged by natural disasters.  He vetoed the bill saying that the people are more effective at solving such problems than the government.  He was right. Since they weren't taxed, private people donated over $1 million to the cause.

During the 1920s the economy soared in an environment whereby the federal government basically cut taxes, cut regulations, and then just sat on the sidelines. That decade saw the greatest economic boom of all time, resulting in basically no unemployment.

During the 1920s taxes and regulations were scaled back, and that decade saw that largest rise in charitable givings in the history of this great nation.  So even while our nation is more charitable than any other nation in history, imagine if our leaders had more of a Laissez-faire approach to government.

Then we have examples of the opposite happening.  FDR raised taxes and regulations to the point that the great depression lasted ten years, while most recessions and depressions prior to the great depression were all short lived. They were short lived because legislatures and the president trusted the American people to turn things around.

The same thing happened during the last year of George W. Bush's term, and the entire Obama term, whereby the government overreacted to a recession and ended up making matters worse.  While our latest recession started in 2008, there is still no evidence that it is improving.

So, bottom line, Laissez-faire governments work best.

Government not responsible with your money

I had a discussion with a good friend who happens to be a liberal republican, and he said that he believes most people are irresponsible with their money, and that the government must take some of it so it can be spent wisely.

I said: "people are smart and are capable of spending their money way more wisely than the government can."

He said, "People do not spend their money wisely, and therefore the government must do if for them."

I said, "I beg to differ.  Individuals work hard for their money, and therefore make wise decisions so they don't blow it.  Government officials have no ties to that money, so it's easier to spend it.  In other words, it's easier to spend other people's money than your own."

He said, "The government is less wasteful with money."

I said, "You think? If an individual blows his money, he pays a consequence.  In this way, he learns to spend it wisely.  If the government blows money, no one seems to care.

Cal Thomas wrote a recent column on May 6, 2014, "Government waste: Where has all the money gone?" that covered this issue well.  He said:

Most people, perhaps even the super-wealthy, who are usually accountable to auditors, want to know where their money goes. This is especially true when they detect money for which they can't account. Not so with the federal government.

Some recent headlines reflect a disturbing pattern that has contributed to our $17 trillion debt and to a growing cynicism among the public, which increasingly regards government in a negative light.

Here are just a few recent gems gleaned from reading newspaper stories and wire service reports: "Pentagon to destroy $1 billion in ammunition." This USA Today story says, "It is impossible to know what portion of the arsenal slated for destruction ... remains viable because the Defense Department'sinventory systems can't share data effectively, according to a Government Accountability Office report..."

So in addition to nonfeasance add incompetence.

The New York Times reports on a modest medical office in Brooklyn that received $4.1 million in Medicare funds for "therapy." The Times says the money went to one person. Maybe the government needs therapy. Taxpayers certainly do.

A personal favorite, again from USA Today: "IRS workers who didn't pay taxes get bonuses."

Then there's this from the Washington Post: "Navy to award contract for Marine One helicopter fleet in shadow of previous failure." Why let failure get in the way of a government program?

"$6 billion goes missing at State Department," reports the Fiscal Times. I'm constantly misplacing billions, aren't you?

The bottom line here is that the government is not more accountable with money than individuals.  While individuals are accountable to auditors, the federal government is not accountable to anyone.  While individuals spend money on things that are needed, the government spends it on things no one wants.

Selfishness has destroyed great nations, and may destroy ours

What destroys nations is selfishness and greed.  I'm not just talking about rich people, I'm referring to the nation in general.  When we, as a nation, put our own personal desires ahead of our nation, the entire nation fails.  It is such selfishness that even brought down the mighty Roman Empire.  

Consider that Roman slaves did most of the work, and that each citizen of Rome had at least one slave, but more than likely many slaves. The citizens of Rome took advantage of the slaves, who did all the work, to live luxurious lifestyles.  But once wars ended and slaves were gone, the citizens didn't know how to work.  So the nation collapsed.  

This wasn't the only reason, but it was one of many contributing factors into the collapse of Rome.  People, the rich and the poor, kept asking for more from the government, and the government kept giving them more.  They did, in essence, create a nation of entitlement programs.  The cost of these programs ultimately became so great the nation collapsed from within and without.  

Now we have an American nation that has, for the past 100 or so years, slowly become a nation of entitlements.  The poor keep asking for more from the rich in the form of entitlements, and they become so comfortable that they can never get off of welfare.  They become so comfortable that they have no incentive to ever get up and go to work.  

The rich, on the other hand, often champion for these same government programs because it will benefit them.  Obamacare, for instance, was championed for by hospitals and insurance companies because they thought that it would create more customers for them.  In the end, it has merely created one more entitlement program whose cost is higher premiums, fewer insured, fewer employed, and more regulations for both consumers and employers.  

Now, I am not opposed to helping the poor and the needy.  Few of us are opposed to helping the poor and the needy.  But this has gone beyond just helping the poor and the needy.  It become more of a "what have you done for me lately" government.  

The more power you give to the government, the more power it will take. This is a historical trend that has occurred in nearly every government ever created. It was this, in essence, that brought down both ancient Greece and the mighty Roman Empire. 

If you give the government the power to tax, it will tax more.  If you give the government the power to create entitlements, it will create to many.  If you give the government the power to make laws "for our own good," they will creating laws based on idealistic myths.  

Worse, once the government makes a law, it takes away one more freedom. Whenever the government makes a new entitlement, people will not want to give it back, and politicians will not vote to eliminate for fear of angering voters.  

I think the idealistic, progressive movement began with an effort to benefit the underclass.  They had many victories, creating laws giving women the right to vote, and laws protecting workers.  But then they started to go too far, which is what government is known to do.  This is one of the reasons why the founders championed that government was a necessary evil.  

Government is necessary in order to create a safe environment for the people to thrive, although too much government, most often created for selfish gain, creates an evil empire that cannot thrive.  

A think a good quote to sum this up comes from Benjamin Franklin.  He said: "I am for doing good to the poor... I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it..."

It's time we, as Americans, stop thinking as individuals who want to make laws for our own personal gain.  Instead, we must start working together as one to protect and preserve the liberties our Constitution was created to protect.  

Who pays all the taxes?

I hear a lot of people saying the rich don't pay their fair share of taxes, and when they do this I usually show them the picture to the right.  It shows quite clearly that the rich pay more than their fair share.

This data was from the 2005 Internal Revenue Service Data. The share of total income taxes paid by the top 1% of wage earners rose to 34.27% from 33.71% in 2002. Their income share (not just wages) rose from 16.12% to 16.77%. However, their average tax rate actually dropped from 27.25% down to 24.31%

Then thing to consider here is that most of the top 50% are not millionaires, but hard working people. Many of them are small business.  Most only make thousands of dollars.  Many are married couples who file jointly and make over $29,019.

Also, consider the following:

• The top 1% pay over a third, 34.27% of all income taxes. (Up from 2003: 33.71%) 
• The top 5% pay 54.36% of all income taxes (Up from 2002: 53.80%)
• The top 10% pay 65.84% (Up from 2002: 65.73%).
• The top 25% pay 83.88% (Down from 2002: 83.90%). 
• The top 50% pay 96.54% (Up from 2002: 96.50%). 
• The bottom 50%? They pay a paltry 3.46% of all income taxes (Down from 2002: 3.50%). 
• The top 1% is paying nearly ten times the federal income taxes than the bottom 50%! 
• The top 1% earns 16.77% of all income (2002: 16.12%). 
• The top 5% earns 31.18% of all the income (2002: 30.55%).
• The top 10% earns 42.36% of all the income (2002: 41.77%)
• The top 25% earns 64.86% of all the income (2002: 64.37%) 
• The top 50% earns 86.01% (2002: 85.77%) of all the income.

So, those are statistics from ten years ago.  So, now you want an update.  Well, today the statistics are about the same in proportions of who pays what, although the rich continue to pay more and more.  

Here are the updated numbers:

• The bottom 50%, it's next to nothing that they pay.
• The share of all federal tax revenue paid by the 1% has doubled since the 1980s.
• The top 20% of income earners have gone from paying 65% of all federal taxes in 1980 to 90% in 2010. 
• The top 1% are paying 30% of all tax revenue. 
• The top 20% are paying 90% of all collected tax revenue; this includes couples with two kids making more than $150,000.

Last year, to prevent the Bush tax cuts from expiring, republicans agreed to increase taxes on the rich.  That means that starting in 2014, the rich should expect to pay even more.  So taxes just keep going up on the rich to pay for the entitlement programs for the 52% who don't pay taxes. 

Plus there have been 442 tax increases since Obama was elected, many of which will effect the people Obama considers is rich, which pretty much on anyone who makes over $150,000.

This is exactly the reason why I am for getting rid of the progressive tax, because as it stands, 52% of American do not pay any taxes, and therefore don't care that taxes keep going up.  Why would they care, if they don't pay any?  If they paid into the system, then perhaps then they'd care. 

Here's why everyone should pay taxes, even the poor

I've always been a believer that if Congress wants U.S. Citizens to pay taxes that we should all pay the same percentage, regardless of how much we make.  Call it a flat tax or whatever you want, but that's what I believe.

The reason I think a flat tax would be good for everyone is because it would put an end to the class warfare.  The reason I think this would be good is because it would make it so that every American had a stake in what that money was spent on.  It would make it so all people would care how our tax dollars were spent.

I mean, think about it.  If you don't pay taxes, why would you care where that money went? Why would you care if taxes went up on the rich, or the middle class, if you don't pay taxes? Well, the obvious answer should be love of country before love of yourself, but I'd imagine personal selfishness, or ignorance due to lack of interest, might also serve as useful answers here.

With 52 percent of Americans no longer paying taxes, that means that more than half of U.S. citizens have no stake in how tax dollars are spent.  If we had a flat tax, 100% would have a stake.  In other words, a flat tax would make it so that we were all in it together, and it would end the class warfare, something that began in 1913 with the 16th amendment.

I'm not necessarily proposing a flat tax, but I think everyone should pay something into the system, if there is going to be taxes at all.  Even if it's $10 a year, or even $5.

I am, however, proposing an end to the progressive tax system.  I think that all it does is punish people for making more money.  About seven years ago I took on a second job as an asthma writer for healthcentral.com, and my wife wanted me to quit because it made it so our income tax return was reduced.  Actually, there was fear we would have to pay in.

So, there really is no incentive to take on a second job.  I do this one because I love it more so than for the money.

My point is, the progressive tax system is a deterrent to making more money, because doing so may put you into a new tax bracket, resulting in you paying more taxes.  A flat tax would end that.  A flat tax would make it so if you made $50 you'd pay, let me make up a rate, say it's 15%.  So you would pay $5 in taxes.

And, if you got a good job with benefits and made $50,000 a year, you would pay $7,500 in taxes.  Now, of course there could still be tax breaks for families, and tax breaks if you make under a certain amount of money, and stuff like that.

Since people will no longer be thrown into a new tax bracket as they make more money, there would be an incentive for everyone to move up the ladder, so to speak. As more people do this, then the government would make more money in the long run anyway.

But the idea is that we would all pay taxes, and therefore all have a stake in the system; an incentive to care; an incentive to vote for candidates who champion for a responsible government.

Is the Affordable Care Act really affordable?

They call it the Affordable Care Act. Some simply refer to it as Obamacare. Regardless,  is the idea it's afordable true, or is it a lie.

Consider that it is not affordable for people making minimum wage.  It is not affordable by most young people starting out in life.  It is not affordable for many retired folks living on a single income.

Consider that the cheapest plan available is $400 a month.  I couldn't even afford that, and I have a good job. So the only way most people can afford it is to receive a subsidy, which means your neighbor is paying for it.  It means I'm paying for your healthcare. Or, it means you're paying for mine.

Some people will say: "Your neighbor is not paying for it, the government is paying for it."  But these people don't realize that hard working people like you and me, people who work hard to support our families, are making sacrifices to pay for it.  We are paying more taxes.  We are taking home less money. That means we have less money to buy food and clothing, and we have less money to pay for college.

And, we also have less money to purchase material items like stereos, computers, cable TV, the Internet, snowmobiles, etc.  So the entire U.S. economic system suffers as a result.

To qualify for a subsidy, you have to earn no more than 400% of the federal poverty level. A family of four can qualify for a subsidy, I think, if your family income's $87,000. So I would, if I didn't have a job that offers it, qualify for a subsidy.  I would be a slave to you.

It's not affordable.  If you have to get a subsidy to afford it, it's not affordable, it just isn't.  In fact, it's welfare.  If you receive a subsidy to pay for your healthcare, you are receiving welfare.

I'm not saying welfare is bad, and I'm not judging those who have no choice but to receive it.  I'm just saying that if you have to receive a subsidy to pay for healthcare, chances are you are going on welfare because the government is forcing you to do it.

Those of us who are receiving healthcare as benefits, we are paying for it with a rise in our premiums.  In fact, premiums for most people have doubled since Obamacare passed.  Many people have lost, or are going to lose, their health insurance plans because of Obamacare.  Copays for prescriptions is doubling, even tripling.

If statistics are correct, three out of four people signing up for Obamacare (that's 75%) received subsidies, that means the cost of Obamacare will be even more than anticipated.

hacer.com notes that it's also not affordable on a national scale: "A nearly 100-page analysis from the government’s official revenue estimators at Congress’ Joint Committee on Taxation pegs the price tag at over $1 trillion, almost twice the nearly $570 billion suggested when the law was passed by legislative trickery three years ago."

Actually, the price tag is now up to $2 trillion.

If the price of Obamacare goes up, surely they will find some way of getting this money from us.  They will raise our premiums, or they will take more of our well earned, hard earned, money.  They will take it from our families.  They will take it from our friends.  They will keep taking it until there is none left, and the entire program falls in and on itself, dragging down with it the entire nation.

In fact, many have, or will, lose their full time jobs because, in order for businesses not to have to purchase healthcare for their workers, they have to be under 50 workers.  So if they are at 49, one person will not be hired.  If a company is at 49, there is no incentive to expand the business, because doing so would mean paying out more for healthcare, or paying a tax that might put the company in the red.  If the company is at 55 workers, it means six people will lose their jobs.

For those people no longer working, or who cannot find work, because of Obamacare, it is in no way affordable. In fact, I think we can see here, that the Affordable Care Act is, in fact, is not affordable at all. Those who say it is might just be telling a lie.