Surplusses and Low Taxes

When it is not in constant fear of government interruption, the economy can thrive. The notion that light government regulation and interference in the economy makes the nation’s economic situation improve is not founded. Either the government is the economy or the people control the nation, any form of an in between can be dangerous. Protectionism is a notion that has been fiercely imposed upon Americans since it’s founding, and also a practice that has historically not worked. Although Americans desire to keep their jobs, and the government wants a lot of money, Protectionism doesn’t work, Scientific Taxation has worked and a balanced budget is essential.

Protectionism in the economic sense is the notion of protecting Americans from foreign competition. In it’s most recent form, protectionism has appeared in Donald Trump’s promises to bring jobs back to America and his proposed tariff on Mexican imports to pay for the border wall. What the proposed tariff will likely do instead is cause inflation. What it won’t do is pay for the border wall. Mexican companies will either find other ways to get products into the U.S. without paying the tariffs or they will raise prices in order to adjust for the tariff. Instead of Mexico paying for Trump’s proposed border fence American consumers will pay for the wall because they will have to pay more money for avocados and televisions. Other failed protectionistic policies include Jefferson’s embargo acts of 1800 and almost every high-tariff in American history. The strongest example of protectionism failing is the Hawley-Smoot tariffs of 1930. This bill raised tariffs on around 900 products and brought import and export levels to a new low. Global trade basically ceased during this time. America sunk deeper into depression and the rest of the world sunk into depression as well. Following the tariff, our unemployment increased about 600 percent, unemployment in Britain increased 130 percent and over 200 percent in both France and Germany. This world is interdependent. Trade equals wealth for all parties involved. When one country imposes tariffs other countries are prone to counter with higher tariffs and trade stops. In order for perfect supply and demand to be met, one countries excess can be sold to other country’s excess.

One of the prevalent reasons why the government wishes not to lower taxes or tariffs is because they don’t want less money than they already have. What they do not realize is that they are overspending and it is also not necessarily true that lower taxes equals a conversely lower revenue. Former treasury Secretary Andrew Mellon supported a theory known as scientific taxation. This is the idea that low taxes make people want to use services more and make more income. The theory states that the government even has the possibility to make more money if taxes are lower and the same across the board because services will be used more broadly. This theory was tested out in the days of President Calvin Coolidge, with pleasant success. Although the federal government did collect less when the taxes were lowered, it was by a margin of just 50 million dollars. Which was not proportional to the shrinkage in taxation, and Coolidge was still able to maintain a fairly large surplus following the tax cuts. A good experiment would be to compare and contrast modern economies of two different countries and their income taxes, one with many increasing tax brackets and one with a low flat tax. The United States is that country with many increasing tax brackets. In the United States, there is little incentive to make more money unless that amount is substantially more because the increase in taxes is that much. The U.S. currently has seven tax brackets ranging between ten percent and forty percent. U.S. GDP per capita currently sits at about 45k. Liechtenstein, a small country in Europe somehow finds the ability to support itself with only two taxes, a 12.5% corporate tax, and a 1% income tax. This country, on the other hand, has a GDP per capita of 90k, double the GDP per capita of the U.S. There are certainly many factors to the wealth of Leichenstien. But perhaps one of these factors is the low government presence in the economy, and the flat income tax.

“If income taxes are so excessive that a man of ability finds he must work more than three days a week for the government and has but three days a week for himself he will become discouraged and decide that the result is not worth his effort.” -Treasury Secretary, Andrew Mellon

However, the most important thing for a government is a balanced budget. The 30th president, Calvin Coolidge understood this. The government ought to be run like a household, it has been given much, thus it is responsible for much. Coolidge met with his budget adviser weekly, and in his tenure brought the Federal budget down to 3 billion from 5 billion. Although Coolidge could not pay off the federal debt he at least brought it down by 1 billion dollars. Ever since then it has been on the up and up, and the government has transcended reasonable spending limits. At one point in Coolidges tenure there existed a surplus of 500 million dollars. Imagine what a government could do with a proportionate surplus in 2017. The U.S. can’t do much, but pay off a trinket of it’s trillions in debt and perhaps eventually be debt free. First, it is our elected officials job to stop waste at every turn.

“It is better to kill bad bills than to pass good ones.” -Calvin Coolidge, 30th U.S. president 

 Government intervention in private economy makes individuals uneasy. Consistent low taxes are a formula for a stable economy. What the government is given it must steward well. Protectionism is a farce that Americans have fallen for, for centuries. The solution rests not in more government but in a smaller and less noticeable government.

2 thoughts on “Surplusses and Low Taxes

  1. @JosiahIngegneri, love that your engaged in matters that affect all our lives! It is never to early to take an interest in your freedom, country and future.

    The idea of free economies, minimal governmental intervention and taxation is excellent. In fact, I do believe it can stimulate economies. However, I don’t necessarily subscribe to the notion that people produce less income purely because of taxation, or even largely due to taxation. Wealth lives in the soul of the man, and manifests itself in additional income. Money makes money, and risk returns a larger reward when executed well.

    How do we reform our belief systems and education system to prepare our fellow Americans to leave the generational factory worker, generational poverty (mindset, not necessarily money) and cog in the machine mindsets behind? How do we revitalize the American entrepreneur in every house and not just in Silicon Valley? How do we destroy the mass acceptance of trading time for money. I think this concept of punching a clock plays a larger role in limited incomes than the notion of additional taxation due to higher income. Think industrialization.

    Larger incomes give the ability to pay for better tax professionals, the purchase of additional revenue streams and the tax itself.

    Further, how to you implement lower taxation and minimal interference when the government machine is running at full steam ahead? For instance, how do you handle the hundreds of thousands of families currently on some form of welfare? They have to become a consumers of goods and services to a larger degree in order for lower taxes to work?

    I ask these questions because I believe your generation has the answers. Keep writing and challenging the fundamental truths people perceive they live by. We all get a little better when we work to address these questions in our own lives.

    Cheers!

    Like

    1. @JeremySlaughter, I appreciate your input. I do agree that generally many people may have a mindset of poverty. Perhaps it is purely up to each person to decide how well off they will be. That’s not to say however that government intervention doesn’t lower ones courage. Or decide just how bold an entrepreneur will be. I am not suggesting that the theory of Scientific taxation is absolute truth. Nevertheless, with many tax brackets, small raises or promotions may not be desired. Even consider Paul Ryan’s three bracket income tax plan. If I make at the very top of the 12% bracket, unless the promotion is drastic enough to account for 13% in extra taxes there is little motivation to take a job in the 25% bracket. This may be a rare situation, but it seems like a perceivable issue. I agree that there are many factors, in a persons income, and also see the issue of an already running government machine. To tackle that the idea of welfare is a completely separate perhaps series of blogs. Though this post is far from perfect I hope you came away with some valuable ideas. I will be considering your questions.

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