The Right Answer

by Nate Bissonette

Cut Taxes Now

President Bush wants to cut taxes by $1.7 trillion. I’m all for it. Federal taxes are too high.

Liberals say Americans are under-taxed compared to other countries, so we ought to raise our taxes to their level. The United Nations is considering a “tax equalization” scheme to raise taxes on us to make the whole world equal. “Equal” sounds good, but if all your friends jumped off the roof, would you do it too? Other countries are even more over-taxed than we are. That’s no reason for them to dig into my wallet.

Taxes weren’t originally this bad. The entire federal government ran on a tax on imported goods for years because the Founding Fathers wanted the federal government to be small, starved for money, and hardly noticed. Now the federal budget is too complex for any one person to know.

The City Clerk knows where every penny went. The federal government failed every audit since 1990. Too big, too much money, and nobody accountable for it. But you damn well better pay.

If a man with a gun threatens to lock you in a room unless you give him money, is he a criminal or a tax collector? Congress uses force to collect taxes. That’s a fearsome power, needed only when people won’t voluntarily pay their taxes, which happens when rates are too high.

There’s a difference between tax rates and tax receipts. Rates are percentages. Receipts are dollars. When tax rates go down, tax receipts go up. Economist Arthur Laffer explained it years ago: suppose we raise the income tax rate to 100% so every penny you earn goes straight to the government. How much tax revenue would be generated? Answer: none. Why not? Because if you worked all day and got nothing for it, you’d quit your job and go on welfare. 100% of nothing is nothing. What if we set tax rates at 10%? Then you’d work, and probably put in overtime besides. It’d be worth it at that rate. 10% of all that income is quite a bit in taxes.

The key is balancing Revenue against Incentive. If tax rates are too high, there’s no point in working hard so tax revenues actually shrink. Cut taxes and suddenly it becomes worthwhile to work hard. And make no mistake . . . hard work is what makes this country run.

Cut tax rates and the government will receive more tax dollars. Sound crazy? Nope, it’s standard business price theory: charge a little less, sell a lot more, get rich. The same thing works for government. We proved it in the 1980’s. Tax rates went down; tax receipts went up.

But wait, what about those deficits? Weren’t they caused by Reagan’s tax cuts, by voodoo economics? No, they were caused by Democrats in Congress spending money like drunken sailors. We cut tax rates and took in more money, but they spent all that and lots more besides. This time we’re betting the Republican-controlled Congress will show more restraint.

The federal government should reduce income tax rates now. That’s The Right Answer.