How to Have Low Tax Rates and Still Stifle Economic Growth



In response to my article Poverty Is Worse Today than in 1965, reader Cai Phillips-Jones left this comment: "According to your statement that 61-69 was the "most vigorous economic expansion”, the optimal rate of taxation would be what JFK reduced it to, with a top marginal tax rate of 70%. I'm sure that you don't actually want that, but it is a natural corollary of your argument."

I have to ask visitors to my site to read carefully. I did not write that low taxes contributed to that decade's vigorous economic expansion. Read what I wrote: "This economic boom can be directly attributed to two massive tax cuts by JFK and his commitment to be pro-business." Low tax rates by themselves mean nothing if government policies are anti-business.

What spurred the economy in question was not the rate but the massive reduction from an onerous rate combined with pro-business policies. The mistake in logic our dear reader made is assuming that the end result and not the action was the operative factor while also ignoring the equal importance of JFK's pro-business policies.

Let me give an example: assume a hypothetical friend Leroy who has a mule. The poor beast was burdened with a 2,000 pound load of bricks. Dumb Leroy asks me why his mule takes so long going from point A to Point B. I suggest he reduce the onerous load. Leroy takes off 500 lbs and the mule makes the same journey in much better time. Leroy then says to me, wow, Bernie, I guess you are telling me that the optimal load weight is 1,500 pounds, eh?

Not quite, Leroy, you are confusing the result with the action. It's the reduction in weight that allowed the mule to go faster, not the resultant weight. While it's obviously better than 2,000 pounds, 1,500 pounds is still unbearably heavy, and certainly it's not anywhere near the optimal weight. If you need to know, the optimal weight happens to be zero pounds.

But reader Cai Phillips-Jones adds, "But - today's much lower rates somehow don't seem to be producing the same miraculous growth rate."

I never wrote that low tax rates stimulate the economy, nor have I ever maintained that lowering the marginal rate by itself stimulates the economy; however I have written that low tax rates generate more revenue for the government than high rates - read my article President Obama Ignores History Regarding Taxes.

Again, let me get back to Leroy and his mule (I have to do this because tax policy seems difficult for some readers and it's certainly obtuse for socialists): the next day Leroy reduced the load on his mule to 500 pounds but but also chained the mule to the barn. Then he observed that the mule was unable to make the journey from point A to point B altogether.

"Hey, Bernie," dumb Leroy asked, "I thought you said lowering the mule's load would make him go faster, but he's not moving at all, what happened?"

"Well, my dear, sweet Leroy," I explained, "Yes, you did indeed reduce the load, however you also hobbled him to the barn. Remove the chains, for God's sake."


tax the filthy rich
Flickr Photo by: Diane Greene Lent
To apply this to Obama and our current economic malaise, we note that despite tax rates lower than those during the Reagan era, the number of people receiving food-stamp assistance has continued to soar, and now more people have been enslaved to the food-stamp rolls under Obama than under any single previous president.

The reason we now are living through a Great Recession is strictly due to Obama's socialist views on wealth and Capitalism. His effort to ruin this country using class warfare, redistribution of wealth by taxing the filthy rich, massive government spending, socialized medicine, protectionist activities of the EPA, and anti-business regulations has so hobbled this country that low taxes by themselves cannot spur us into a recovery.

As most of my readers know, small businesses are the real engines of growth in this country and Obama's promise to raise taxes on this group as well as his extreme anti-business policies have resulted in the lowest number of business startups since 1977:

Entrepreneur, 5 Oct 2012, Is Romney Right About Startup Rates Dropping?

  • In 2010 the per capita number of new firms was at its lowest level since the data were first collected in 1977, according to U.S. Census Bureau numbers.

  • Census data also show that in 2010 the per capita number of new establishments was at its lowest level since 1977.

  • U.S. Small Business Administration data show that in 2009 the per capita number of new-employer firms was at its lowest level since 1977.

  • U.S. Bureau of Labor Statistics data show that in August, the per capita number of unincorporated self-employed people was at its lowest level since August 1977.

  • In 2010, BLS figures on the per capita number of establishments open less than one year were at their lowest since these numbers were first collected in 1994.

That's why, despite low tax rates, we have a sluggish economy, because Obama despises businessmen.



### End of my article ###

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