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Wednesday, October 20, 2010

A short lesson on economics

If I hold a dollar bill in my hand does the dollar bill know who is holding it? Does the dollar bill know who is spending it or where it is being spent? In a recession we need people to spend money. We need a demand for goods and services. We need for people to have money and for them to spend that money. The dollar being spent doesn’t care about whom, why or where it just needs to be spent. In this current recession we need people to spend money. It does not matter whether it is the rich, the middle class or the poor person, they all need money and to have enough confidence in the future to spend the money they have.

What happens when people spend their money? If a producer of a product or service receives a dollar and spends that dollar it has a multiplying effect on the economy. First the producer received a dollar because he provided something the people wanted or needed and he fulfilled that need. If the dollar he received is spent at the grocery store then part of the dollar goes to pay the wages of a clerk (worker A). Another part goes to replace the product sold at the store. That part pays the wages of the driver (worker B) and the wages of the packer who packaged the product (worker C) and the wages of the production worker (worker D) who either made or picked the product at its source.

Now all these workers (A, B, C, and D) receive their wages and spend them in various stores paying the wages of a multitude of others representing many A’s, B’s, C,s and D workers. Over the year that dollar, that $1.00, has multiplied to pay the wages in the amount of $3.40. The more dollars that people have to spend the more dollars are multiplied and the economy grows. The more the economy grows, the greater the demand requiring more workers to produce more products to sell and more wages are paid and the cycle goes on and on.

In addition if the government collects 10 cent of every dollar spent then for every dollar increase that workers get to spend then the government actually gets 34 cents in revenue. Seeing that not every dollar a worker gets is actually spent (some is saved, pays taxes, etc.) government revenues actually doubles for every dollar given in a tax cut. This was proven by the Coolidge, Kennedy, Reagan and Bush presidencies. The reality of economics is that a tax cut will increase government revenues and a tax increase will decrease government revenues. Again history shows that the government revenues stay at about 19% of GDP (Gross Domestic Product) no matter what the tax rate is. It is the same 19% when the tax rate is 70% or at 25%. Knowing that fact common sense would tell you that it is best for the country to use the lowest tax rate possible allowing the people to pursue, life liberty and happiness because the government will get what they need anyway.

The main economic effect every time congress increases taxes on something is that people do things to avoid paying the tax. Tax boats and people will quit buying boats or buy a boat where they will pay no taxes. Increase Taxes on income and people will find ways to avoid paying taxes, all legal of course. The final result is less government revenue and the people building boats are now out of work (true story). People investing and making profits will quit investing and find other places to put their money. Then there is less money for businesses, capital and research and development. Overall more increased taxes means fewer jobs, lower wages and less for all.

Then the politicians call for more taxes on the rich. They can afford it they say. Yes maybe but it will still means he has less to spend. He has less to invest. Back to what I said at the beginning, the dollar does not care who is spending it or where it is being spent. When it is spent by anyone it creates jobs, it multiplies. History has proven over and over that lower taxes will grow the economy, create jobs, increase wages for all and increase government revenues. Everyone benefits.

This is really so simple that even a politician should be able to understand it. If politicians were really looking out for the people of the United States then they would look for the simplest, fairest way to impose taxes so the economy would grow so fast and so great that everyone who wanted to work could. The debt would be paid off quickly and America would absolutely again be the greatest country in the world. If a politician really cared about you and our country they wouldn't be talking about raising taxes and a gazillion programs to help someone. He would be lowering taxes and let everyone share in abundance we would have.

If your congressman or senator thinks he is doing you a favor by increasing taxes on anyone, if he thinks that cutting taxes is sacrificing benefits to some poor constituent then you need to think about what I said come election time. The only reason for our current tax system is to punish opponents or reward those who provide a benefit to that congressman or senator. It is to punish those who don’t agree with their ideology, or to pad their pockets and secure their future.

Americans deserve the best tax system in the world. We deserve the best job creating economy in the world. We have the means to do it. We have the ability to do it. We have the people to do it. If we just had real leaders in congress and the White House we could really do it. It is time to vote, but not just vote but know who you are voting for and why you are voting for them. Do they support a fair American tax system, American jobs or are they just looking for power? Do they represent capitalism or socialism? Do they support job growth or job control? They think you are stupid. This time prove them wrong.


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