Bush Tax Cuts: Low Taxes increase Tax Income

Today, President Bush announced the following about the current state of the American Economy and the National Deficit:    

“When the economy grows, businesses grow, people earn more money, profits are higher, and they pay additional taxes on the new income. In 2005, tax revenues grew by $274 billion, or 14.5 percent; it's the largest increase in 24 years. (Applause.) Based on tax collections to date, the Treasury projects that tax revenues for this year will grow by $246 billion, or an 11 percent increase. The increase in tax revenues is much better than we had projected, and it's helping us cut the budget deficit. “

Notice an important idea in the above quote that sates the following idea, there is an increase in tax revenue without an increase in taxes. Let me stress this again, that no increases in tax rates were needed to increase tax revenue, and more importantly, to make a dent into the national deficit. Yet, how is this possible you might be asking? This is the end result of allowing people to actually have control over the money they earn and allowing them the liberty to use it to whatever needs are important to that individual. On a simplistic level it is easy to understand by using the following scenario.

By having the ability to keep more of what he earns, an individual can put this money to further use in the economy for his own personal gain. Instead of having his money sitting useless in the government’s coffers where it goes to waste and is of no value to the individual, and more importantly, the economy. Yet, by putting his money into the economy in some form, investing, saving, or buying a new product or service, it is being a productive source in the economy at large. This capital in the economy at large can have several different outcomes, the following just being one outcome.

Since individuals have more money to spend some are buying more of a certain product, and a local plant is able to hire on new employees at all levels in the company. While hiring new employees for the company, it is also able to increase the wages of the employees already working at the company due to the fact that ownership is paying less money toward taxes. In addition to the lower taxes, the company is also able to lower the prices of many of the products it provides because the costs for raw materials has gone down to produce these products have gone down, for all companies are experiencing the same type of affects from low taxes that this company is experiencing. Thus, our individual is able to get a higher paying job, resulting in his ability to put more money towards his credit card debt, which had been piling up over the last year while he was working in a lower paying job.

This is using plain terminology and showing how this can affect a person on the individual level. President Bush uses the following analogy to explain affects of lower taxes:

One of the most important measures of our success in cutting the deficit is the size of the deficit in relation to the size of our economy. Think of it like a mortgage. When you take out a home loan, the most important measure is not how much you borrow, it is how much you borrow compared to how much you earn. If your income goes up, your mortgage takes up less of your family's budget. Same is true of our national economy. When the economy expands, our nation's income goes up and the burden of the deficit shrinks.

Just as our individual in the sample provided was able to increase and expand his personal economy and get out of debt. This very principle applies to the national debt as the nation’s economy grows, more overall capital is available and is being put to use in a productive manner meaning more overall money and individual wealth in which the government is able to collect taxes from, without having to increase taxes because of an increase in the tax base.

Bush’s tax cut is a step in the right direction, and one lesson that some state governors could learn a valuable lesson from when it come to true economic growth. Yet, more is needed to continue this increase in the expansion of the American economy. This further expansion lies on a similar concept found in the reason for the tax cuts, but deals with production. Just as the above shows how productive money can be when people are freely allowed to put to good use. Producers must be freely allowed to do what is needed to remain competitive in the market and be a productive company. Thus, the next step in this economic rebirth is to remove the restrictive measures that are in place for many sectors in the economy. It is about time these companies are allowed to freely produce the products that drive the economy and let them drive the economy onward toward a brighter, richer economic future, and one step closer to true laissez-faire.