Demagogues, Taxes, Lies, and Unintended Consequences

This post will demolish the leftists' ideas of progressive and regressive taxes. It will also demolish the idea that government spending can stimulate the economy. The large majority of you reading this already know as much or more about these topics as I do. But don't stop reading! Refresh your memory and garner some facts and arguments to use against that annoying neighbor or worthless brother-in-law who voted for Obama and the Democrats.

Point 1. There is no such thing as progressive taxes based on taxing corporations and the rich more. But, when corporations and the rich are taxed at a higher rate than those who make less money, this is called progressive taxing. Often you hear, "make corporations and the rich pay their fair share!" from the ignorant and the left. Oops, that's redundant. From now on I will just say left, or leftists, or Democrats, or socialist since they all mean the same thing. By definition, taxes which are a higher portion of income of the poor are called regressive.

Example. Higher taxes on corporations are regressive not progressive. Suppose lower middle class family A makes about $50,000 per year and pays no direct income taxes and upper middle class family B makes about $200,000 per year and pays about 50% income taxes. Now let's raise taxes on all corporations by 20%. Suppose, too, that almost all of Family A's income goes for "necessities" made by corporations and for Family B about half of their income ($100,000) goes for their "necessities" and the other half for taxes.

If the government raises corporate taxes by 20%, and the corporations pass along the taxes in the form of increased prices (which they must to stay in business and keep employing workers), then let's examine the consequences. Family A must cut back by 20% or $10,000 per year because they need all the necessities they were buying before the tax hike on corporations. This is equivalent to 20% new taxes for Family A and a cut in disposable income from$50,000 per year to $40,000 per year. Obviously the "poor" just got poorer by 20%.

Now, Family B must cut back some of their $100,00 per year necessities. But if you are upper middle class you have a bit of flexibility in your necessities and may only have to cut back $15,000 (less to savings, less to college expenses for educating their children, less to charity, etc.) . Now, based on necessities of $100,000 reduced to $85,000 the "rich" got poorer by 15% of necessities or 7.5% of total income. Even if Family B cut back the full $20,000, it would be 20% of their "necessities" or 10% of their total income.

Who suffered the most from upping corporate taxes? Family A, the "poor" family. Thus, a tax on corporations is a regressive tax because the poor suffer relatively more than the "rich". No tax at all on corporations would help the "poor" more than any other corporate tax scheme; it would lower the rate of increases in prices of necessities--a hidden regressive tax ignored by the socialists.

The final blows to the "poor" from raising corporate taxes come in two ways. First, raising corporate taxes eventually leads to layoff of workers. All other things equal, more "poor" workers get laid off than "rich" workers. Second, when American products become more expensive due to higher taxes, then in a free global market (which we have), cheaper foreign products will pour in and drive more and more American corporations out of business. Then the vicious cycle of higher prices and fewer jobs spirals down the economic health of the entire nation, especially the "poor". Again, higher corporate taxes hurt the "poor" most--they are regressive.

Point 2. Taxing the "rich" is regressive in the short term, in the mid- to long term, it is highly regressive. During the last 50 years it has been demonstrated over and over that government revenues FALL when taxes are raised and RISE when taxes are lowered. Presidents Kennedy, Reagan, and G.W. Bush lowered taxes and government revenues increased and the economy grew. Other Democrat and RINO presidents raised taxes and government revenues fell and the economy shrunk.

Why does this happen? For a variety of reasons. First, every $ spent in the private sector generates about $3 of economic activity by what is called the multiplier effect. For example, every dollar spent in establishing a new business generates about $3 in the economy because that business must hire people and buy new products and services. This new hiring and new buying generates more money in the economy (even more hiring and buying) and thus more taxes for federal revenue.

Second, the more money the "rich" are allowed to keep the more they spend on everything from luxury items (growing more jobs) to investments in new businesses (meaning innovation and,again, many more jobs). Think of how miserable our economy would be today if there were not any "rich" people or companies to invest in development of the transistor, computers, new energy resources, and on and on.

On the other hand, for every dollar taken out of the private sector by taxes, there is a loss of that dollar plus the 3 others it would have generated in the private sector, or an initial loss of $4. Now the government has a huge, nonproductive overhead and tens of millions of dependents so before that dollar is returned to the private sector it may have shrunk to $0.50 or less. With the same multiplier of 3 the benefit to the economy from a tax dollar may be $0.50 + $1.50 = $2 or less. So let's look at the balance: a $ spent in the private sector generates $3 more for a total of $4 in the private economy; a dollar in taxes removes $4 and may return $2 or less to the economy. In other words, a $ left in the private sector generates 3 more for a total of $4. A $ removed by taxes only returns about $2 to the economy--a net loss of $2. Obviously taxing the "rich" and replacing their $4 contribution to the private sector with a $2 government contribution is a bad deal all the way around. Losing a net of $2 from the economy again hurts the "poor" through fewer jobs and higher prices and fewer taxes paid to the government.

Some would argue that increasing government taxing and spending has a positive effect on the economy. But, tax raises and tax cuts over the last 50 years has shown that is not true. Tax cuts grow the economy and jobs. Tax increases and more government spending shrink the economy and jobs.

Therefore, increasing taxes on corporations and/or the rich doesn't help the "poor", it hurts them, and is thus regressive. Only demagogues and their sycophants talk seriously of raising taxes on corporations and the "rich". Everyone else knows that higher taxes and bigger government hurt everyone but the crooked politicians and a few of their collaborators.

So, What's the Solution?

The disingenuous and crooked claim that raising taxes on corporations and the "rich" is progressive, and thus fair. It is regressive taxation and thus very unfair. It is also possible to show that property taxes, and all other taxes not tied to consumption are regressive.

The only progressive tax would be one on consumption, such as a national sales tax on everything applied to everyone. This would be progressive, because the more you earned and spent the more you would be taxed.

The solution is to abolish all taxes except universal and uniform rate national sales taxes. Everyone would pay the same rate, everyone would have "ownership" and thus a stake in preserving our nation, and those who spent more money would pay more taxes.

This will never happen because it would remove the power to tax and to reward rich, crooked politicians and their rich collaborators with regressive taxes.

But abolishing all taxes but a universal, one rate national sales tax is a goal. Each step closer to this goal will result in increased measures of freedom, prosperity, and fairness in our individual lives and in our government. Improving the lives of all Americans is a worthy goal.