I own a business that provides a service to customers that pay me monthly. We did well last year and turned a profit. This year President Obama is going to increase my tax rate by 2%. Doesn't sound like much but 2% means about $1 million dollars for me. I have to find a way to get that million dollars back. My first step is to lay off 4 employees. That saves me $200,000. Now those employees are on unemployment costing the government more money.
To make up the rest, I pass an increase to my customers. Some customers, already paying more for other goods because of the tax increases on all businesses, decide to drop my business. Less customers means less revenue despite my increase in costs. I struggle by and manage to turn a profit by cutting costs and cutting corners. No Christmas bonus this year. But I digress. Let's see what happened here: I fired 4 employees, lost customers and, by the time the taxes are done, find that I am paying the same amount to the government in taxes as I did 2 years ago because of the decrease in revenue. So, despite the 2% raise in taxes, the actual dollar amount I'm paying the government remains identical and the burden on the government is greater because I fired 4 employees.
Now multiply that thousands of times and you see what tax increases can do to the economy. Let's look at what happens with a tax decrease:
I own a business that provides a service to customers that pay me monthly. We did well last year and turned a profit. This year President Obama is going to decrease my tax rate by 2%. Doesn't sound like much but 2% means about $1 million dollars for me. I now have an additional million dollars I can spend on my business. The first thing I do is begin a marketing campaign for my service. This increases my number of customers. Therefore, I hire 4 new employees which costs me around $200,000.
With additional money saved from taxes, I buy new furniture and build the infrastructure of my business to provide better service to my customers. Because of the increased service and marketing, I continue to add new customers and my business grows. Let's see what happened here: I have an additional million dollars so I hire 4 new employees. These employees can now pay taxes to the government and, if they were on unemployment, can now reject those government checks. My customer base increased because of my improved service which means additional revenue for my business which means I'm paying more in taxes today than I did 2 years ago despite the 2% cut. And, because my employees are making more money, they are paying more in taxes and having more disposable income to spend elsewhere.
Multiply that thousands of times and you have what saved the economy in the early '80s. Tax cuts give more money to people which means businesses can grow and hire more employees which increases the tax base, which actually increases the amount of money the government collects despite lower tax rates. This is the path that needs to be followed.
The government cannot tax itself out of debt. The burden will bury the American public and eventually lead to greater suffering. To see what taxes do, look no further than the tobacco tax. Sure, it made people quit smoking, which was a noble cause. But the increases in taxes funded several state programs. Once people stopped smoking because they could no longer afford to, the amount of taxes collected dropped. That meant those programs were underfunded so they raised the tobacco tax again. More people stopped smoking. Less revenue. And lord forbid the government ever cut a program. Instead, they're looking for other taxes to raise to make the difference. If you raise taxes on other goods, people are going to do their best to stop using those goods. Or they're going to cut their spending elsewhere.
Sure, it seems like tax increases would simply raise the amount of money the government would have. But that isn't the case. The rippling ramifications of even the smallest tax increases can be felt throughout the entire economic system. If taxing us out of our problems is the long-term solution by the Obama administration, we are in deep trouble. No country has ever taxed themselves to prosperity. And no country ever will.