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Economy Needs Major Fix

The American economy today is in a ‘death spiral’. It can be fixed with the right policies, although the Democrats are doing everything they can to force us down this dead-end road. They wish to stall the economy so that the federal government gets more and more power through dependence and the private sector loses most of its power. It is classic socialism.

Rush Limbaugh occasionally uses an analogy for the problem: That the American economy is like a wagon and that today there are far too many people, and increasing numbers of people, riding in the wagon (people who are not working or who are getting money from the government, either as paychecks, entitlements or handouts) and decreasing numbers of people pulling the wagon (people who are working in the private sector and paying taxes to the government).

Obviously this is going to cause the wagon to stall eventually. The analogy is spot-on.

Now look at this shocker from the Heritage Foundation (heritage.org):

‘“One of the most worrying trends in the Index is the coinciding growth in the non-taxpaying public,” wrote Heritage authors Bill Beach and Patrick Tyrrell. “The percentage of people who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, jumped from 14.8 percent in 1984 to 49.5 percent in 2009.”

That means 151.7 million Americans paid nothing in 2009. By comparison, 34.8 million tax filers paid no taxes in 1984.’

This is utterly unsustainable. The math is simply impossible. This is why Greece finally collapsed; because they refused to make reforms until the situation was critical.

So now Mitt Romney has proposed an overhaul of the tax system. He is calling for a 20% across-the-board cut to individual tax rates; for a reduction in the corporate tax rate; and for an end to capital gains levies for most taxpayers.

This is good stuff. We need lower rates for the productive people who indeed pay taxes in order keep money flowing both to more workers in a growing private economy and, in the resulting taxes, to the federal treasury.

But Romney has played the ‘occupy’ card by saying, “I’m going to limit the high-end deductions particularly for high-income folks. We can make sure the top 1 percent is paying their current share or more.”

So he is not suggesting any tax reductions for ‘the rich’ who already pay a huge tax burden. Recent figures from New York City showed that the Top 1% of earners paid 43% of the city’s taxes while 1.3 million people paid no city taxes whatsoever.

And there’s your problem right there: Increasing numbers of people are not paying anything (riding in the wagon) while more debt piles up and government obligations are rising every year.

And the other part of the equation is that the accumulated wealth of ‘the rich’ is not hidden away in their townhouses and mansions. It is invested in the economy.

Thus when ‘rich people’ have money in bank accounts and in stock portfolios, that money is available to be lent out by the bank or it is working as investment capital to keep the private economy growing.

When ‘rich people’ buy homes, carpenters and electricians have more jobs and better incomes. When ‘rich people’ go on vacation, workers at tourist hotels have higher paychecks. Or when ‘rich people’ buy artworks, the artists have better standards of living.

So if the government took all of the money away from ‘rich people’, the economy would collapse. Because there would be a massive reduction in the amount of private capital to loan or to invest or to buy things. This is why communist nations always fall into poverty. Because there is no private investment; the government controls all the wealth.

And unfortunately Romney is kowtowing to the welfare state in ignoring two other critical areas:

*First, and most obvious, government spending must be cut dramatically across the board. Our national debt and our annual deficits are all unsustainable. Even a growing economy cannot account for all the spending.

*Second, ALL Americans must start paying taxes. Former presidential candidate Michele Bachman said it well. “Everyone must pay taxes, even if it’s only ten dollars.” And the above statement from the Heritage Foundation shows why everyone must pay taxes.

Thus we should institute a flat-tax system where everyone who earns any money must pay at least some percentage to the government, even as low as 2% for low-income people (if someone earns $6,000 a year, they pay $120 or 2%). This way everyone pays taxes. And this is just common sense for two reasons:

First, everyone needs to be part of our economic system and support the operations of the federal government. It is only fair. That almost half of all Americans are not paying federal taxes today is unfair and unsustainable.

Second – and this is the important part – people who pay no taxes almost always vote to increase federal spending because they are not paying for federal spending.

Thus if we have a system whereby everyone pays taxes, and whereby everyone who pays taxes sees an increase in their taxes if the federal government expands, then those people will think twice about federal spending and will not necessarily support increases.

To achieve a growing economy, therefore, we must do the following in addition to Romney’s tax reduction plan:

*everyone pays federal taxes.

*eliminate the federal Departments of Energy, Education and Transportation ($150 billion annual savings).

*scale back the Environmental Protection Agency budget by 50%.

*cut all farm subsidies 50%.

*eliminate 440,000 federal jobs out of a federal workforce of 2.2 million, or 20% of the federal workforce.

*reduce the pay/benefits/pension of every remaining federal worker by 20%.

*reduce every federal Social Security, Medicare and Medicaid payout check by 20%.

*reduce every federal welfare, food stamp and housing subsidy check, along with all other handouts, by 20%.

*eliminate all grants to ‘scientists’ for ‘global warming’ or other environmental studies.

*eliminate all subsidies for wind and solar power.

*eliminate billions in grants for other things like the Cowboy Poetry Festival. Eliminate the National Endowment for the Arts which too often supports anti-Christian and indecent art.

This way everyone who receives a federal government check will make equal sacrifices. Nobody can complain.

And we should:

*use private firms to root out corruption in government spending.

*test all federal aid recipients for drugs and tobacco and drop those found positive.

*pull all US military forces out of Afghanistan.

*withdraw 50% of American forces from Japan and Germany.

*close unnecessary military bases in liberal states like California and Massachusetts since Democrats are most vocal in demanding defense reductions.

These combined reductions in spending – and ultimately debt – will set our nation on a course of sure-fire growth. It works every time.

Meanwhile, on the tax side, increasing tax rates past a certain ideal point always causes revenues to the government to fall.

In a famous policy in the 1990s  a luxury tax was added to the price of expensive yachts. The intention was to get more money for the treasury. But the extra tax simply led rich people to stop buying yachts; caused sales taxes collected from yacht purchases to plummet; caused the government to start losing tax money on the deal; and led the yacht industry to lay off thousands of workers. Because the government couldn’t force rich people to continue to buy yachts.

Telegraph.co.uk recently reported about a new ‘50p rate’ which is a new top 50% tax rate on high-income earners in Britain:

‘The Treasury received £10.35 billion in income tax payments from those paying by self-assessment last month, a drop of £509 million compared with January 2011. …Senior sources said that the first official figures indicated that there had been “manoeuvring” by well-off Britons to avoid the new higher rate. The figures will add to pressure on the Coalition to drop the levy amid fears it is forcing entrepreneurs to relocate abroad. The self-assessment returns from January, when most income tax is paid by the better-off, have been eagerly awaited by the Treasury and government ministers as they provide the first evidence of the success, or failure, of the 50p rate. It is the first year following the introduction of the 50p rate which had been expected to boost tax revenues from self-assessment by more than £1billion.’

So while the increase in the top rate was expected by its socialist authors to produce an increase of 1 billion British pounds going to the government, it actually caused a reduction of more than one-half billion pounds.

Thus it is proven – once again – that after a certain point that increasing taxes actually causes reductions in the amount of money received by the government.

David Frum, a former Bush aide, even recently wrote this on CNN.com about Sweden which has moved to the capitalist right:

‘American conservatives might find (Swedish prime minister Fredrik) Reinfeldt disappointingly unconfrontational. Yet in five years in office, he has repealed Sweden’s wealth taxes and inheritance taxes. He has reduced the labor taxes that pushed almost all home repairs into the black market.’

Look at that unbelievable sentence – ‘He has reduced the labor taxes that pushed almost all home repairs into the black market’.

So if you think that it is only increased taxes on ‘the rich’ that change people’s behavior, consider that even common home repairs in Sweden were pushed into the black market by excessive taxes.

Amazing, is it not? And that is what always happens in high-tax states. Everyone tries to find a way out.

So if you make taxes reasonable, then everyone is willing to contribute. And everyone must. And the economy will be more equitable and will grow solidly if that is the policy.

Please visit my blog at www.nikitas3.com for more  conservative insights. And enoy the lively new Arts section.

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