Friday, September 30, 2005

Tax Cuts Increase Revenues, Jobs and decrease poverty

Marxist-European socialism does not work and ensures a failed nation state

by StFerdIII

Canada and the US are overtaxed and over-regulated nations, but you would not know it from the media and academic class, who are constantly crying for more taxes, higher spends and more programs. Hating the rich and promoting Marxist class warfare is the rallying cry for liberals and socialists. In their imaginary socialist world, the rich beat the poor with large clubs and steal the hard earned money of the underclass. In the Euro-Marxist view of life, the rich are no more than lucky parasites, pilfering from the common genius of the small folk. In this world-view tax reductions, cuts and credits are deemed evil since the ugly rich are the great beneficiary’s. Happily reality is a little different. In Canada and the US the poorest 50 % of the population pay almost no Federal income tax. In fact the richest 10 % in both countries account for about 50 % of all tax revenues received by Governments. The top 20 % pay over 80 % of all income taxes. So much for the exploitation of the poor. We should call such a system the exploitation of the rich.

Given that a small % of the population pays all the bills would mandate that tax cuts would free up their capital and allow more money for investments, jobs and economic growth. This in turn allows poorer people access to better paying and more interesting jobs. The cycle of economic growth is dependent on stability; low interest rates; low inflation and a stable money supply, but it is dependent most of all on available capital. The more liquid and capitalized a country is, the richer, more powerful, and more dynamic, its economic and job creation will be.

The great differences between the socialist state of Canada and the quasi-capital markets of the US highlight this point. In the past 5 years the US economy has been growing at almost 2x the rate of Canada and has created over 3 million jobs or double the per capita Canadian rate. This is while the Americans are fighting two wars, protecting the Western nations militarily and allowing Canada and Europe to free ride off not just their military, but also their technology, health care and pharma industries. Yet Canada fares better than the even more socialized ninny states of Continental Europe, which have had in the past 5 years, zero economic growth [in some cases negative], little job creation [actually overall in many nations there have been net job losses], and lower standards of living.

Historically tax cuts work. In the 1980s, US President Ronald Reagan cut the highest personal income tax rate from an obscenely high 70% rate to 28%. Within 8 years resulting economic burst caused federal tax receipts to almost double: from U$517 billion to $1,032 billion.

Economics 101 – what they won’t teach you at Uni:
We can witness the same phenomenon from the Bush tax cuts of May 2003. Bush reduced tax rates on dividends from 39.6% to 15% and on capital gains from 20% to 15%. These sharp cuts in the double tax on capital investment were intended to reverse the 2000-01 stock market crash, which had liquidated some $6 trillion in American household wealth, and to inspire a revival in business capital investment, which had also collapsed during the recession. The tax cuts were narrowly enacted despite the usual indignant primal screams from the greed and envy lobby about "tax cuts for the super rich."


So what happened in 2005 ? US Federal tax revenues are up 15.4% over 2004 levels. Individual and corporate income tax receipts are now 30% higher in the two years since the tax cut. Once again, tax rate cuts have created a virtuous chain reaction of higher economic growth, more jobs, higher corporate profits, and finally more tax receipts. As this economic expansion gained strength state and local tax receipts have also climbed 7.5%. As well stock markets have increased in value since 2003 adding about U$2 Trillion to the net wealth of households. This net wealth is used of course to purchase large goods, second homes, cars, and also to invest in small businesses and new ventures, stimulating job creation and innovation.

Canada has had little of the tax cuts that have stimulated the US economy – and this is why Canada has a lower standard of living and less job creation. Europe is in even worse shape. The US poverty rate is only at 12 % - less than 50 % of its 1950 levels. The lesson is pretty obvious except to those anti-American, anti-capitalist Marxists, who are blinded by ignorance living in their virtual reality universe. Not only do tax cuts stimulate the economy they also create the conditions necessary for the poor to escape their poverty trap. You don’t solve poverty through welfare systems and handouts. You solve it through new, better, and more numerous jobs. Giving someone a job and some self respect, is far more moral, than handing them a cheque for doing nothing.

We need more tax cuts and greater reduction in government spending. By doing this we help not only the wealthy but our entire society. Tax cuts however without a reduction in government spending is dangerous. We need reforms on both the revenue and the spending side.