Saturday, November 13, 2010

The Myth of the Liberals

If talk of taxes are very dry reading for you, then I apologize. However, with the debate going on over extending the Bush Tax Cuts, it's important to understand some facts.

The argument from the liberals is that we can't afford to extend the tax cuts on the rich. We don't need to make the rich richer. Making the rich, richer doesn't help the middle class. The rich can afford it.

We've all heard the line that nobody has ever gotten a job from a poor person. It's simple but more importantly, it's true.

I looked at the most recent history of tax cuts. The Reagan Tax cuts of the 80's, the Clinton tax increases of the 90's and the Bush tax cuts of the 2000's. My source is the Joint Economic Committee, which can be found at the government websites.

Tax rates in 1981 were cut. Prior to those tax cuts, during the tax year of 1981, the "rich" or top 1% of income earners paid 17.6% of all personal income taxes.

By 1988, the top 1% of income earners paid 27.5% of all personal income taxes.

This is the exact opposite of what the liberals have been saying in their arguments. If the liberals were right in their argument, that tax cuts benefit the rich, they should have been paying something less than 17.6% by 1988. But that just isn't the case.

So if the tax cuts are so good for the "rich" as the liberals say, then they must be bad or at the very least, negligible for the middle class. Under that reasoning, the middle class must be paying more too. However, that's not the case at all. During that same period from 1981 to 1988, the tax burden on the middle class dropped from 57.5% to 48.7%! That means that the middle class had their taxes go down by 8.8 points, while the richest had theirs increase by 9.9 points! To give you a better idea of what the tax cuts did, the tax revenues in 1981 were $244 Billion. However, in 1988 with tax rates lower, the tax revenues were $466 Billion! If the liberals were right in their arguments, it should have been much less than $244 Billion in 1988, not a $222 Billion increase in revenues!

So how can tax rates come down yet those that have the most, actually end up paying more than when the taxes were higher? This is really very simple to understand, but liberals refuse to look beyond statism. They have more money during the year that they are able to put back into their business in several forms.

First, they can increase their inventories. After all, if everyone got a tax decrease, more people will have more money to spend, therefore, a business owner must have more supplies to sell to those wanting to buy.

Second, because they have more inventory to sell and more customers buying, they have a need for more people to sell their product. So they must hire more people. The people they hire, don't have a job or they wouldn't be applying for a job. That now means that they have more money to spend because they now have a job where they are earning money.

Third, Because they have more inventory, and because they have more sales, this generates more income for them, which means they pay more dollars in taxes even though their tax rate is down. They also have an added expense due to the new employees that they had to hire. While we pay over 7% to social security out of our paychecks an employer also pays that amount for each employee. Yet, they still hire pe0ple because they have more sales and need the workers, whether those workers are there to sell the product, produce the product or put together the product.

What this means is that while the "rich" are getting a tax break, they are paying more taxes because their income increases. They take advantage of the additional capital due to lower taxes and actually create a situation where their taxes increase by investing that capital into their businesses, and making more money.

Will the tax cuts make the rich get richer? Yes, as it should. Those that work hard for their earnings will reap the rewards of that harder work. When they are freed up by lower taxes, they know that they will have more dollars to put into their business and earn even more dollars to pay taxes on. They don't have to look for ways to lower their tax burden by avoiding taxes with investments that are free of taxes or ship their jobs oversees to avoid the taxes in this country. They can then keep the jobs here, keep the money here and keep the reinvestment here.

But what happens when taxes are raised? In 1993, a tax increase was pushed by Bill Clinton and the Democrat Congress. In the spring it was voted on and naturally it passed in the House where the Democrats controlled. In the Senate however things were more even and there was doubt that the tax increase would go through. That's when Al Gore, Vice President of the United States and President of the Senate and more importantly, the tie breaking vote, chose to vote for the Democrats and Clinton and the tax increases became law. In addition, those increases were retro active to January.

The effect of that tax increase was a decrease in tax revenue. There was also a decrease in productivity. During President George H. W. Bush's final quarter of his Presidency, the economy grew at a robust 4.6%. The tax increase took effect in January the following year and the economy grew at just 2.6% for the next two years.

Again, it was proven that tax cuts work. President George W. Bush got tax cuts put into law in 2001 and 2003. This had the effect of increasing tax revenue to the Federal government in record amounts! It also had the economy growing per quarter at better than 5%. One quarters growth was actually at 8.5%!

There was another benefit to these tax cuts. Unemployment during the first 7 years of his presidency was averaged at 4.5%.

Once again, as in the 80's and the 60's and the 20's, tax cuts increased the economy, tax revenues and lowered unemployment.

This year we're not even talking about cutting taxes. We're talking about extending the tax cuts already in place that are due to expire on January 1, 2011.

If we know that decreasing taxes increases the governments checkbook, why then do we have deficits? We should have had profits many many years ago and the government should not be in debt and should not be operating on deficits. The answer? Spending. The government spends more than it takes in. When they receive extra money, they don't pay their obligations, they spend it on other things driving us further into debt despite the increase in funds.

Do you know when the last time was that the government spent less money than the year before? I didn't know. I looked it up. The year was 1965. In 1965 medicare/medicaid was passed. The war on poverty was started. Since that time, spending has increased each and every year!

If you look at graphs of spending, you can see that the largest years were during the Depression, wars and in the past two years. President Roosevelt tried to spend our way out of the depression. It failed. It only brought on a second depression in 1937. We are now doing it again.

If we want to see prosperity again in this country, we need to pass these tax cut extensions and pass them quickly! If we want to expand the recession and possibly put us into a depression, the path we're on with the massive spending, bailouts and talk of increased taxes is the right way to ruin this country.
The arguments put out by the liberals is nothing more than a myth. Tax cuts and even tax extensions for anyone does not need to be paid for. To the contrary, tax increases need to be paid for. This is why the liberals lost the election in the House, the Senate, the Governors, the state chambers and even local elections. They lost due to the health care debacle. The cap and trade threat. The financial overhaul attack on Wall St and the banks. The liberals will never admit this, but it is what cost them the election. Just like the excessive spending by the Republicans cost them the election in 2006.

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