The GOP’s Fallacy That Tax Increases Take Money Out Of the Economy

Jul 08 2011 Published by under Uncategorized

The argument by the conservatives that tax increases take money out of the economy is absurd. The debate that tax cuts create jobs by allowing the wealthy to keep more of their money is even more disillusioned. The simple point is tax increases simply increase revenue to the federal government, but the federal government doesn’t SIT on that money. They either pay workers or invest that money in infrastructure. The money that is spent to invest in our national or local infrastructure goes directly to private companies most of the time. I speak from personal experience on this issue.

The government taxes a business in city (X) one dollar, that city then hires a private company to build a road or fix a light. That private company then gives me, the employee, that dollar that was paid in taxes by that business in city (X). I then take that dollar and buy a soda from the business that was originally taxed and they deposit that dollar in the local bank, who then loans that dollar out to another business or person. See the money flow?

The conservative model is to reduce taxes. This allows that original business to keep that dollar in profit. The company doesn’t hire anybody new, because demand is down. That dollar is not put into the local economy. It is withdrawn in dividend payments to investors and CEO salaries who then sit on it because, as history explains, the wealthy CAN NOT spend all of their money. Banks and very large businesses are currently stifling the economy and money flow because they are sitting on the profits, rather than hiring or reinvesting in their business.

Raising taxes right now would energize the money flow.

Look at the 1980s. Under President Reagan the top tax rate was 50%. The wealthy were only keeping 50% of their profits and income, yet the economy grew. TODAY the wealthy are keeping 65% of their profits and income, 15% more than under President Reagan, yet the economy is NOT growing.

Unfortunately current Democrats, including the President, are buying into the supply side theory. It’s time to reverse the course and educate people about simple economics and money flow, because the current model just isn’t working.

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