Monday, November 20, 2006
Lessons from the past: lower tax levels increase wealth and jobs
Marxists and socialists have no idea what they are talking about
by StFerdIII
Marxists, socialists, granola bar lovers and the legal-media elite hate the past. In the socialist’s view of life all previous knowledge and experiences are deemed irrelevant. Society has to be reformed in the image of the socialist elite and there preferences. In such a world taxation and spend rarely go down. If taxes are cut then the bleating socialist sheep cry poverty, destruction of the old, and the usual refrain that capitalism is nothing more than fascist racism designed to keep the mass impoverished while the elite benefit. That such a viewpoint is absurdly ignorant is obvious. That the media and educational systems keep repeating the lie is almost criminal. Lower tax rates, coupled with lower spending actually benefits society far more than increased state control and the augmentation of the all-knowing Marxist elite’s powers. Some simple historical examples explain why.
In Canada taxation rates as a % of GDP are 30 % higher than in the US and in socialist Sweden they are 40 % higher. One would expect, according to Marxist theory, that both Canada and Sweden would be richer than the US. Of course the opposite is true. Canada has a standard of living 1/3 lower and falling compared to the US, and on any economic per capita comparison Sweden would be amongst the poorest, if not the poorest of US states. Swedes live for example in less square footage than the average poor American and 40 % of Sweden would be poor using American calculations of povery [vs. 12 % in the US]. So much for the benefices of benign socialism.
Since the 2003 Bush marginal income tax and dividend rate cuts, derided in the media as sops to the ‘rich’ and devastating the ‘poor’ [who don’t pay income tax anyways], the US economy has continued to grow faster than the mainstream media would like to see. The fact remains that tax-induced capital cost reduction has resulted in higher investment returns and has boosted investment, aided business growth and created 2 million new jobs a year. Incredibly, whilst fighting 2 wars and dealing with natural catastrophes, the US economy in the past 3 years has added nearly 5 million new jobs. Europe has added barely 400.000 jobs and Canada about ½ the per capita US level.
US unemployment is now at a 30 year of 4.8 percent. Wages are increasing with average hourly earnings rising 3.5 percent over the past year and 4.8 percent at an annual rate over the past three months — their best performances since 2001. Importantly, falling gas prices at the retail level are boosting real incomes enough that consumer spending is still strong despite a slowdown in the housing sector and somewhat higher mortgage rates. US net worth is comfortably over $52 Trillion or 4.5 times its economic size, the highest level in history. While debt levels have risen somewhat the debt service level is still in the 12-15 % of net income band that it historically has been in for the past 30 years. In other words most US workers and citizens across all classes and incomes are richer today than ever. They are far wealthier on a per capita basis than either the average European or the Canadian.
US growth and wealth accumulation should continue – if the US follows tax and spend reduction policies. Importantly the new Federal Reserve chairman Ben Bernanke has publicly argued that low inflation promotes economic growth and that strong economic growth is something to be desired, not shunned. Bernanke cited Milton Friedman’s argument of nearly fifty years ago that inflation is a monetary phenomenon and not a function of too many people working or prospering. As gold prices rise and monetary growth eases off expect that US interest rate increases will eventually stabilize further bolstering US economic and GDP performance.
Contrary to media and elite anguish, it is lower tax cuts that result in better jobs and more wealth for society. Thirty years ago Reagan economic guru Art Laffer proved that lower tax rates ignite economic growth. Now, the Laffer curve is tracking a US business-led expansion that is throwing off record budget revenues while corporate profits are soaring. Corporate profits, much to the chagrin of Marxists and socialist engineers, spur the economy, stocks, and create better jobs and higher pay cheques. According to the US Fed, after-tax profits in the fourth quarter of 2005 hit 8.1 percent of GDP, a post-WWII record. At a trillion dollars, profits are way ahead of their prior peak in 1999 and have nearly doubled since their recent trough in 2001. This translates directly into family net wealth creation which advanced 8 percent in 2005 to a record level of $52 trillion.
So how to keep the US economic party going? A few simple things need to be done.
-First make the 2003 Bush tax cuts of $1.3 Trillion permanent.
-Second, extend the tax cuts by taking the capital gains and dividend tax rates from 15 % to zero. This will do more to spur investments, stocks and job growth than almost anything else. For example, when the top capital-gains tax was slashed from 49 percent in 1977 to 20 percent in 1983, the amount of venture-capital funding for new firms increased from $68 million to $5.1 billion — a 700 percent increase. Conversely, when the capital-gains rate was raised to 28 percent, venture-capital funding fell by almost 60 percent (between 1986 and 1991).
-Third, cut the Corporate income tax from 35 %, which is far higher than the US competitors, to 10 % or even better – zero. More corporate profits translate in the longer term into more business investments, business process innovations and job creation.
-Fourth, cut non-military spending including entitlement spending, drastically. Unless the US [and all other advanced countries] drastically reduce non military spending and government size, future tax increases and debt accumulation will be a reality.
History teaches that less government, lower taxes and lower social spending and reduced ‘social engineering’ benefits the mass for more than utopian schemes and visions of program spend, buying lobby group support, or equalization measures to buy votes. Socialists and Marxists live in a fantasy playground and we can never let reality be subsumed into their misguided and immoral vision of social engineering. Cutting taxes does not benefit the rich – it benefits more than anyone else the average toiling citizen by providing him with more disposable income and over the longer term a better paying job.